HOHUP (5169) - Favourable funding conditions for Ho Hup’s Myanmar and Iraq projects
Saturday, 13 September 2014
By: DANIEL KHOO
HO Hup Construction Co Bhd’s decision to expand into Myanmar and Iraq is purely a business decision that requires minimal upfront initial capital.
This conducive funding conditions minimises upfront risks for Ho Hup particularly in its Iraqi joint venture (JV) project given that the company also needs to satisfy growth requirements to meet shareholder demands.
A company spokesperson from Ho Hup tells StarBizWeek in a statement that its recently announced maiden JV project in Myanmar with Zaykabar Company Ltd is a safe “low hanging fruit”.
The Myanmar JV, which was announced earlier in the week and in which it owns a majority 70% stake, will fork out US$40 (RM128) per sq ft for land which is paid progressively to its JV partner based on sales collection.
“We do not invest in the land which is owned by our JV partner. Thus our investments are minimal and will be only initial working capital and the project is expected to be self-funded from the sale proceeds,” the spokesperson says in response to questions from StarBizWeek.
“We are very confident the project will contribute positively to the overall group’s bottom line over the next three years,” he adds.
The company says the estimated profit margins from this project is around 6%-7% based on an estimated total gross development value of US$200mil (RM640mil) with an estimated project duration of three years.
Ho Hup notes that its 30% JV partner is one of the largest and well established corporate groups in Myanmar and owns large landbanks in Mingalardon, the new satellite city to its capital city Yangon.
The spokesperson further explains that the 191 bungalow lots which the JV will build is strategically located in a prime area within the Mingalardon Garden City.
“It is located next to the golf course, already sub-divided and comes with existing infrastructure like roads, water, power and services,” he says.
Ho Hup’s role is to provide modern designed houses with up-to-date amenities, technical and management expertise.
In the case of Iraq where the company was first awarded a contract for a water project in Baghdad back in 2012, the spokesperson says that the only risk, other than geopolitical risks, is foreign exchange currency risks.
“When the Iraqi projects were offered to us, we said we could only accept these projects upon our terms where it is 100% back-to-back with our Iraqi sub-contractor and JV partner and zero funding from us,” he says.
The company’s earlier statements also note that Ho Hup will undertake the role as the main contractor and will appoint and work with locally established Iraqi sub-contractors for the project execution and project financing for their projects there.
The spokesperson says it is mindful of the geopolicial risks that it is faced with now especially with the ongoing war with the Islamic State that are mainly confined to the north of Iraq presently.
He notes that if war really does break out in the area that it was operating in, it just needed to immediately get the company’s engineers and personnel home.
Ho Hup executive director Derek Wong told StarBiz in an interview earlier in the year that the company has around 30 engineers in Iraq and notes that returns are quite good while risks are ‘shared’ with its Iraqi partners.
Following the strong run-up in the company’s share price since the second quarter of 2013 on expectations of an exit from the practice note 17 (PN17) status, the market seems to be taking taking profit since August on the present elevated risk situation in Iraq.
Ho Hup’s exposure in Iraq today includes the US$58mil (RM185.6mil) contract to rehabilitate roads, infrastructure and utility services and a RM267mil work to build a water treatment plant.
In hindsight, notwithstanding the elevated risks due to the volatile geopolitical situation there, the company notes that its Iraqi projects that were awarded to it is a “blessing in disguise”.
“When the Iraqi projects were (first) procured in late 2012, Ho Hup was still deep in restructuring mode and still with PN17 status. Ho Hup was not in a position to take on local projects although we had all the track record, no banks wanted to finance them,” the spokesperson says.
“Often we were technically qualified but disqualified at the commercial evaluation stage due to the PN17 status,” he adds.
The spokesperson also says that there is no change in the status quo for Ho Hup despite the latest government change in Iraq with Haider al-Abadi being recently named the country’s new prime minister.
Ho Hup says it continues to enjoy an excellent working relationship and cooperation from its JV partner and government authorities there.
“They have seen our sincerity and commitment to the project and country, in spite of all the difficult conditions in Iraq,” the spokesperson adds.
http://www.thestar.com.my
Saturday, 13 September 2014
By: DANIEL KHOO
HO Hup Construction Co Bhd’s decision to expand into Myanmar and Iraq is purely a business decision that requires minimal upfront initial capital.
This conducive funding conditions minimises upfront risks for Ho Hup particularly in its Iraqi joint venture (JV) project given that the company also needs to satisfy growth requirements to meet shareholder demands.
A company spokesperson from Ho Hup tells StarBizWeek in a statement that its recently announced maiden JV project in Myanmar with Zaykabar Company Ltd is a safe “low hanging fruit”.
The Myanmar JV, which was announced earlier in the week and in which it owns a majority 70% stake, will fork out US$40 (RM128) per sq ft for land which is paid progressively to its JV partner based on sales collection.
“We do not invest in the land which is owned by our JV partner. Thus our investments are minimal and will be only initial working capital and the project is expected to be self-funded from the sale proceeds,” the spokesperson says in response to questions from StarBizWeek.
“We are very confident the project will contribute positively to the overall group’s bottom line over the next three years,” he adds.
The company says the estimated profit margins from this project is around 6%-7% based on an estimated total gross development value of US$200mil (RM640mil) with an estimated project duration of three years.
Ho Hup notes that its 30% JV partner is one of the largest and well established corporate groups in Myanmar and owns large landbanks in Mingalardon, the new satellite city to its capital city Yangon.
The spokesperson further explains that the 191 bungalow lots which the JV will build is strategically located in a prime area within the Mingalardon Garden City.
“It is located next to the golf course, already sub-divided and comes with existing infrastructure like roads, water, power and services,” he says.
Ho Hup’s role is to provide modern designed houses with up-to-date amenities, technical and management expertise.
In the case of Iraq where the company was first awarded a contract for a water project in Baghdad back in 2012, the spokesperson says that the only risk, other than geopolitical risks, is foreign exchange currency risks.
“When the Iraqi projects were offered to us, we said we could only accept these projects upon our terms where it is 100% back-to-back with our Iraqi sub-contractor and JV partner and zero funding from us,” he says.
The company’s earlier statements also note that Ho Hup will undertake the role as the main contractor and will appoint and work with locally established Iraqi sub-contractors for the project execution and project financing for their projects there.
The spokesperson says it is mindful of the geopolicial risks that it is faced with now especially with the ongoing war with the Islamic State that are mainly confined to the north of Iraq presently.
He notes that if war really does break out in the area that it was operating in, it just needed to immediately get the company’s engineers and personnel home.
Ho Hup executive director Derek Wong told StarBiz in an interview earlier in the year that the company has around 30 engineers in Iraq and notes that returns are quite good while risks are ‘shared’ with its Iraqi partners.
Following the strong run-up in the company’s share price since the second quarter of 2013 on expectations of an exit from the practice note 17 (PN17) status, the market seems to be taking taking profit since August on the present elevated risk situation in Iraq.
Ho Hup’s exposure in Iraq today includes the US$58mil (RM185.6mil) contract to rehabilitate roads, infrastructure and utility services and a RM267mil work to build a water treatment plant.
In hindsight, notwithstanding the elevated risks due to the volatile geopolitical situation there, the company notes that its Iraqi projects that were awarded to it is a “blessing in disguise”.
“When the Iraqi projects were (first) procured in late 2012, Ho Hup was still deep in restructuring mode and still with PN17 status. Ho Hup was not in a position to take on local projects although we had all the track record, no banks wanted to finance them,” the spokesperson says.
“Often we were technically qualified but disqualified at the commercial evaluation stage due to the PN17 status,” he adds.
The spokesperson also says that there is no change in the status quo for Ho Hup despite the latest government change in Iraq with Haider al-Abadi being recently named the country’s new prime minister.
Ho Hup says it continues to enjoy an excellent working relationship and cooperation from its JV partner and government authorities there.
“They have seen our sincerity and commitment to the project and country, in spite of all the difficult conditions in Iraq,” the spokesperson adds.
http://www.thestar.com.my
