IWCITY (1589) - Iskandar Waterfront City Bhd: Long-term property play
IWH models itself after Philippines’ Ayala Land
THE euphoria surrounding the corporate development at Iskandar Waterfront City Bhd (IWC) is evident.
However, the value creation for the listed company that would sit on prime parcels of land in Kuala Lumpur and Johor Baru would come over time.
In a nutshell, IWC is a proxy to the new look Iskandar Waterfront Holdings Sdn Bhd (IWH) and offers investors a longer term property play that is safe.
The reason is simple: The land that IWH would eventually own large tracts of land located in cities after it takes over the listing status of IWC.
Because of the scarcity of land in the city, the company tells investors that the price would only go up over time and as it is developed in phases.
For example, one of the prime parcels is Bandar Malaysia, a 20-year development plan spanning over 483 acreas located right in the heart of Kuala Lumpur.
The gross development value is said to be RM200bil. The other parcels of valuable land are located at the waterfront in Johor, with a development period that could go beyond 30 years.
Investors chasing IWC’s share price, which hit a limit-up yesterday to close at RM2.28 per share, obviously feel that value creation is immediate.
IWH is 63%-owned by Tan Sri Lim Kang Hoo through his private company Credence Resources Sdn Bhd, while the remaining shares are held by Kumpulan Prasarana Rakyat Johor (KPRJ).
Meanwhile, IWH and KPRJ each have a 38.34% and 6.5% stake respectively in IWC, which has 1,072 acres mainly located in Tebrau, Johor. The remaining of the shares in IWC are made of minority shareholders.
The corporate exercise announced on Wednesday involves IWH taking over the listing status of IWC through a share swap on a ratio of one-for-one.
The new-look IWH will have 7,400 acres of land.
Lim describes the new IWH as more than just a property developer owning a huge plot of land or a master developer.
“Our land is located in cities where the value will only rise over time. We are not a master developer because we don’t develop the properties ourselves. We are like Ayala Land Inc.”
The Philippines-based Ayala Land real estate firm is in strategic landbanking management, residential development projects, office space, hotel and shopping mall developments.
It is a real estate juggernaut in the Philippines with a rich history that can be traced back to the 1800s.
Ayala Land is known for creating a 25-year urban development programme for Makati city in 1940s. Makati is now the financial centre of the Philippines.
The firm now has 22,110 acres of land across the Philippines, generating an annual revenue of RM9.48bil and a profit of RM1.56bil in 2015. During that year, the firm launched a total of 53 projects worth RM10bil.
“IWH is backed by pure land that is located in the city that will only grow over time of more than 30 years.
“People are starting to understand our business model and they like it because we are also creating new growth centres,” Lim says, adding that the firm is planning an investor’s roadshow.
In terms of income generation, Lim says that he would steer the new-look IWH into a firm that could generate income from three businesses - land sales, joint ventures with property developers and rental income from fixed assets.
“We will take up minority stakes in joint ventures that would give us recurring income.
“We will also have properties in prime areas that will give us rental income,” he says.
“We make money from land sales and joint-venture developments. So far we have ploughed back all the money to reclaim the land and to build the infrastructure,” he said.
IWH has completed 80% of its reclamation work for its land in Johor Baru.
As part of the exercise, Lim, KPRJ and the Sultan of Johor will be offered shares in return for injecting their land in Johor Baru that is not part of IWH at the moment.
Apart from shares, the three would be offered redeemable convertible preference shares (RCPS) for injecting their land.
The RCPS can only be converted when the new IWH achieves a profit of RM1bil on a cumulative basis
“This will provide security for shareholders on the assets we injected in the new IWH,” Lim says.
Three valuation firms did a pricing on the land and came up with a value of RM1.5bil for the land held by KPRJ that measures 1,900 acres and RM2.6bil for 452 acres held by Lim.
The Ministry of Finance Inc will also be given an offer to consolidate its 28% stake in Iskandar Waterfront Sdn Bhd, the company that holds the waterfront land under IWH, at the Newco level.
If all the parties agree to the consolidation of their assets and shares at the IWH level, then the new-look IWH will have up to 7,400 acres of land worth about RM30bil based on RM93 per square feet.
Upon the conclusion of the merger and restructuring, the expanded share capital of IWH is expected to be up to 4.3 billion shares, and if based on the offer price of IWC at RM1.50, the market capitalisation of the new IWH would be at RM6.45bil.
Following the merger and restructuring, IWH is proposing to place out 600 million shares, of which 400 million would comprise new shares and 200 million existing shares.
The placement is about 13% of the enlarged capital of IWH and will help fulfil the free float requirement of IWH as well as to be used for debt repayment.
The exercise is expected to take six to nine months to complete.
As the deal gets nearer to completion, the euphoria over IWC may pick up.
Ironically in 2007, Ayala Land’s market capitalisation was RM6.5bil. Now it is worth some RM46bil.
Lim wants to tell the Ayala story to potential investors that the listed IWH is more than just a master developer.
IWCITY (1589) - Iskandar Waterfront City Bhd: Long-term property play
http://www.thestar.com.my/business/business-news/2017/03/11/longterm-property-play/
