PETALING JAYA: Sime Darby Bhd, together with SP Setia Bhd, is teaming up with the Employees Provident Fund (EPF) to develop the 39.1-acre freehold Battersea power station site in London with a projected gross development value of £8bil (RM39.4bil) comprising a mix of residential and commercial properties.
In separate announcements to the stock exchange early yesterday, conglomerate Sime Darby and property developer SP Setia said a joint-venture company in which the EPF would subscribe to a 20% stake would be set up.
Trading in the shares of both companies were halted for an hour yesterday but came off lower when trading resumed at 10am when the announcements were made.
In a joint press release, SP Setia president and chief executive officer (CEO) Tan Sri Liew Kee Sin said the site was undoubtedly London’s most important and central urban regeneration site. “This is a golden opportunity for the partners to make our mark as global property players,” he said.
Boats sail in front of Battersea Power Station during the Thames Diamond Jubilee Pageant on the River Thames in London on June 3, 2012. – AFP
In the same press release, Sime Darby president and group chief executive Datuk Mohd Bakke Salleh said: “London is a strategic and important target destination for property investment and development. As such, the Battersea project represents an excellent opportunity for us and our partners to expand our footprint into a key international market.”
Separately, EPF deputy CEO for investment Datuk Shahril Ridza Ridzuan said the fund “is pleased to accept the invitation from SP Setia and Sime Darby to join in the consortium following their success in securing this bid”.
“As a retirement fund and a long-term investor, we are able to appreciate the long gestation period required to extract the full potential of this development project which will ultimately enhance the returns for our contributors,” he said.
SP Setia and Sime would have an equal share of the remainder 80% stake in the joint venture. The EPF’s stake would be held via Kwasa Global (Jersey) Ltd. The joint-venture company would acquire the site for £400mil from a group of vendors together with the joint administrators and receivers of the vendors, Alan Bloom and Alan Hudson of Ernst & Young LLP.
The board of directors of the joint-venture company would consist of a maximum of 11 directors with four each from Sime Darby and SP Setia and three from the EPF.
Sime Darby said the joint venture would provide a formal working relationship between the parties and enable them to leverage on each other’s strengths in executing the project.
SP Setia said Sime Darby and EPF brought with them not only significant financial resources, but also a strong and practical understanding and appreciation of the long gestation period required to fully maximise and realise value from the redevelopment of the property.
The companies said the estimated project cost for a two-year period commencing from the date of completion of the contract (to acquire the site) was £200mil.
Additionally, the joint venture would be required to contribute £212mil to the Northern Line extension of the London underground which would see the construction of one new station near the site to improve accessibility.
Sime Darby said the project was crucial in helping the company achieve a 20% income distribution from the property division’s overseas operations by 2016 while SP Setia said the proposed acquisition represents another positive step towards expanding its international footprint in yet another highly strategic global city.
The parties said the project, which came with planning permission, would take 15 years to complete with the development involving private residential units, serviced apartments, office, retail, food and beverage and hotel properties.
“The project, in particular, is forecast to see strong capital growth on the back of regeneration plans with improved transportation facilities. The scale of the development creates the opportunity to evolve and respond to changes in life-cycles and thereby increase the value of the development,” Sime Darby added.
SP Setia said it was confident the project would be well received due to its strategic location in a development hotspot, which should be attractive to overseas buyers looking to benefit from long-term capital growth.
“The development cost of the project will be funded through a combination of internally-generated funds and external borrowings, the proportion of which can only be determined later. It is too preliminary to ascertain the total development revenue and costs, expected completion date or expected profits to be derived at this juncture,” it said.
RHB Research Institute Sdn Bhd analyst Loong Kok Wen said funding sources would be particularly crucial for this big-scale project. “The inclusion of Sime Darby and EPF has definitely strengthened the consortium’s position in securing funding. Assuming a 50:50 debt/equity capital structure for the joint venture, we estimate that SP Setia will need RM600mil to meet funding commitment for the first two years,” she said.
Loong’s forecast for SP Setia remains at “market perform”.
Another RHB Research analyst Hoe Lee Leng has maintained an “outperform” recommendation on Sime Darby. “However, we are revising our sum-of-parts-based fair value to take into account the cash outlay required for this acquisition. Based on Sime’s 40% stake in the joint venture, it will need to cough up RM800mil in cash for the acquisition (not including the amount required for the underground station) and this has reduced our fair value to RM10.75 (from RM10.90),” she said.
Meanwhile, Reuters quoting Knight Frank’s Stephan Miles-Brown, who sold the site to the joint venture, said British bidders were “noticeable by their absence”.
“In the 1980s, the Chelsea Harbour scheme was developed not far from Battersea power station,” he said. “Bovis Homes and P&O were behind that. Times have changed.”