Property developer S P Setia said in an announcement on the Bursa Malaysia exchange that the company could pay around RM3.5 billion ($794 million) for I&P Group, creating one of the country’s largest real estate firms.
S P Setia – along with Permodalan Nasional Berhad (PNB) and Amanahraya Trustees Berhad – entered into a non-binding Memorandum of Intent to acquire the interests of I&P Group, which has 4,264 acres of landbank.
At the end of 2016 I&P Group was said to be worth RM3.16 billion ($720 million), but the indicative price stated in the Bursa Malaysia exchange announcement stipulated that the price paid to acquire the company could be anywhere from RM3.5 billion to RM3.75 billion ($850 million).
If the acquisition goes through, it would significantly increase S P Setia’s prime landbank holdings in the country’s Central Klang Valley, which is home to Kuala Lumpur, Petaling Jaya and Port Klang, as well as in Johor Bahru next to Singapore.
“We believe that the acquisition of I&P Group will allow us to tap the synergistic opportunities that I&P Group could offer given that its landbanks are located within the growth areas in the central part of Klang Valley and Johor Bahru, where our Company has charted successes and are a stronghold of its ‘Setia’ brand,” said Khor Chap Jen, president and CEO of S P Setia, who added that I&P Group has a strong balance sheet and very low debt.
PNB Marshalling Property Forces
Permodalan Nasional Berhad, Malaysia’s largest fund management company, is the major shareholder in both I&P and S P Setia and has said that it stands ready to provide the necessary capital support to make the transaction a success.
“The strategic rationale for the combination is clear and compelling. The two groups’ landbanks are in close proximity whilst their respective customer base is highly complementary, which shall facilitate greater value creation,” said Abdul Rahman Ahmad, president and group chief executive of PNB. “This combination will create the largest property company in Malaysia and one of the leading players, with a total landbank of close to 10,000 acres.”
The same day as the announcement of the Memorandum of Intent for the I&P acquisition, a wholly-owned S P Setia subsidiary entered into a conditional sale and purchase agreement with Seriemas Development Sdn to buy around 342.5 acres in Bangi, Selangor for around RM 447.58 million ($101 million). The owner of the Bangi Estate is a 60 percent owned subsidiary of PNB.
Malaysia’s Luxury Homes Taking a Hit
On Wednesday, S P Setia beat out 24 bidders with an offering S$265 ($189.7 million) for a plot of land in Singapore to develop a five-storey luxury condo with a gross development value of S$457 ($327 million), but back home the luxury residential property market isn’t looking so rosy.
Malaysia has experienced a glut of luxury homes in recent years, with a report in the Malaysia Chronicle claiming that 20 to 30 percent discounts and zero percent down payment schemes had become the new norm. Data from the National Property Information Centre (NAPIC) has showed an overall drop in transactions in the luxury home sector; from the second quarter to the third quarter of 2016, total transactions dropped more than 9 percent, from 2,014 to 1,826. High-end commercial properties saw a similar drop of 10 percent around the same period.
China, now Malaysia’s top real estate investor, has been hit by capital controls that are effecting some very high-profile Malaysian developments, including the unfolding drama at Country Garden’s $100 billion Forest City project.
After news of S P Setia’s acquisition of I&P Group and the Bangi Estate hit, shares rose to a new high for the company to RM 3.67 ($0.83), the highest since May of 2013.