Are the planned listings of Medini Iskandar Malaysia Sdn Bhd and Iskandar Waterfront Holdings Bhd (IWH), worth a combined US$1.1bil (RM3.51bil), in a tight spot because of Budget 2014?

November 9, 2013 Leave a comment

Updated: Saturday November 9, 2013 MYT 6:29:58 AM

Exemptions for Medini Iskandar?

BY JOHN LOH

Are the planned listings of Medini Iskandar Malaysia Sdn Bhd and Iskandar Waterfront Holdings Bhd (IWH), worth a combined US$1.1bil (RM3.51bil), in a tight spot because of Budget 2014? IWH, which is developing 1,700ha of land in Danga Bay, Desaru and Tebrau coasts, as well as Johor Bahru City Centre, has delayed its much-anticipated US$300mil (RM957mil) initial public offering (IPO) by a year later than planned, newswireReuters reported this week.The Tan Sri Lim Kang Hoo-helmed firm was a flurry of activity earlier this year when it inked deals for land sales and joint-ventures with the likes of Singapore’s Temasek and CapitaLand, Brunsfield, Tropicana Corp Bhd, Australia’s Walker Corp and Chinese property giant Country Garden.

But its IPO is now slated for the final quarter of 2014 on concerns that steps to rein in property prices could crimp demand from foreigners.

Medini Iskandar Malaysia, on the other hand, is expected to go ahead with a US$800mil (RM2.55bil) debut in the first half of next year. It is understood thatMaybank IB, Goldman Sachs and Bank of America Merrill Lynch have been tasked to manage the listing.

Due to Medini’s status as a special economic zone – which exempts it from limits on foreign ownership, bumiputera quotas and price floors – the 902ha area will not be subject to Budget 2014’s various restrictions, say insiders.

Nonetheless, Medini Iskandar Malaysia is waiting for black and white from theFinance Ministry to confirm this, a source says.

Prime Minister Datuk Seri Najib Tun Razak had unveiled last month a set of cooling measures to ease soaring property prices.

Foreign buyers will be levied a 30% real property gains tax (RPGT) for assets sold within five years of purchase and a minimum price of RM1mil from RM500,000 previously – policies analysts say will hit speculators where it hurts.

There does, however, appear to be some uncertainty on the matter, other sources tellStarBizWeek.

They believe the curbs on Medini, if any, could be selective, for example imposing the RPGT but not the price floor.

With a potential value of RM68bil to be realised over 20 years, the Medini township, overseen by Medini Iskandar Malaysia, is touted as the single largest urban development inside southern Johor’s 222,000ha Iskandar Malaysia, an area three times the size of neighbouring Singapore.

Key projects there include EduCity, Legoland and Pinewood Studios, along with a host of commercial and residential developments being built by the likes of Sunway Bhd, Eastern & Oriental Bhd, WCT Holdings Bhd and Mah Sing Group Bhd.

Medini Iskandar Malaysia is majority-owned by Iskandar Investment Bhd (IIB) and counts Dubai’s United World Infrastructure and Japan’s Mitsui & Co as shareholders.

IIB is in turn 60%-held by Khazanah Nasional Bhd, with the remaining 40% split equally between the Employees Provident Fund and state-linked Kumpulan Prasarana Rakyat Johor Bhd (KPRJ).

Should both Medini Iskandar Malaysia and IWH make it to Bursa Malaysia, they would be among only a handful of listed master developers such as the Philippines’ Ayala Corp and Japan’s Mitsubishi Estate Co Ltd.

Although this business model is largely untested in Malaysia, master developers enjoy stable and recurring income from their joint-ventures with the actual developers, who pay them a fixed percentage of the gross development value of a project, or in one-off land sales.

Property analysts expect to see a knee-jerk reaction on sales following Budget 2014, especially in Iskandar Malaysia where foreigners constitute a major portion of buyers.

According to data from CBRE, foreigners consist of 54% of all high rise residential sales in Nusajaya and 39% in Johor Bahru and other big suburbs. Some 80% of foreign buyers of homes in Iskandar Malaysia are Singaporeans, who also make up one-third of all buyers including Malaysians.

Although sales in Iskandar Malaysia could soften for a few quarters, analysts believe that long-term demand from foreigners will stay resilient on the back of Malaysia’s affordability vis-à-vis cities like Singapore and Hong Kong.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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