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IOI Properties removes HK Land as partner for prime CBD project

Singapore

IT looks like Malaysia's IOI Properties will remain solely responsible for the mixed-use development in Singapore's prime business district, after terminating the agreement with HongKong Land to jointly develop and manage the project.

But the news did not sit well with market watchers, who deemed it a negative surprise that would stretch IOI Properties' net gearing. It also sent shares of the Malaysian developer to a two-year low on Wednesday.

IOI Properties had said on Tuesday that the termination will not impact the development of the Central Boulevard site and that it is confident of completing the project.

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Provisional permission from the Urban Redevelopment Authority (URA) was obtained in February this year to commence development works on the land parcel at Central Boulevard; the tender for the piling works has been awarded and construction has already commenced.

The termination of agreement with Hongkong Land was due to "non-fulfilment of certain conditions precedent", IOI Properties explained in a regulatory filing with Bursa Malaysia on Tuesday.

Under the memorandum of agreement inked between the two firms in June last year, conditions that had to be met by March 12 this year include obtaining remission approvals for additional conveyance duties and additional buyer's stamp duty, approval from URA, lenders' approval, and approval from Bank Negara Malaysia.

IOI Properties did not specify which of these conditions were not met yet nor did it respond to queries from The Business Times by press time. Hongkong Land also declined to comment.

Hong Leong Investment Bank analyst Lee Meng Horng said: "We are negative on the news as we opine the joint venture with Hongkong Land would complement IOI Properties well in the development given their wealth of experiences managing prime office assets and also ease the balance sheet burden of IOI Properties in undertaking the entire project."

IOI Properties' unit Wealthy Link had in November 2016 secured the white site at Central Boulevard for a whopping S$2.57 billion or S$1,689 per sq ft per plot ratio. Under the memorandum of agreement inked with Hongkong Land in June 2017, the latter was supposed to take up a 33 per cent stake in the project.

"Without the contribution from HongKong Land, we expect IOI Properties' net gearing to be stretched and will inch up closer to 0.8 times from the current 0.6 level with the estimated development cost in the region of S$700-800 million," Mr Lee said.

MIDF Research, part of Malaysian Industrial Development Finance Berhad, revised its target price for IOI Properties to RM1.89 from RM2.09, as it raised the discount to revalued net asset value to 53 per cent from 48 per cent on concerns over rising net gearing.

Shares of IOI Properties fell 2.2 per cent on Wednesday to RM1.77, marking a two-year low. A day before, IOI Properties had said that it was confident that it would be able to proceed with and complete the proposed development.

The scheme for this 1.1-ha site comprises two office towers of about 1.26 million square feet of leasable space and a small retail podium of about 30,000 square feet.

The site is adjacent to One Raffles Quay and close to Marina Bay Financial Centre - both properties developed by Cheung Kong, Hongkong Land and Keppel Land. This is why analysts were hoping that with Hongkong Land's involvement, direct underground and overhead links can be built to adjoining buildings, thus enhancing the value of the development. (see amendment note)

IOI Properties had, in the past, tied up with Ho Bee Investments to develop two condominium projects on Sentosa Cove and teamed up with City Developments Ltd in the mixed-use project, South Beach. It has sold 95 per cent of its 755-unit condominium project in Clementi called The Trilinq.

The Malaysian developer has not solely developed commercial projects here, though it has extensive experience in developing commercial, residential and integrated township projects in Malaysia.

One industry source said that the termination of agreement between the two companies could be due to differing views on the market and how to position the scheme.

There were also technical constraints concerning the site, he said. "The marriage of the two parties was surprising in the first place. The URA approval has also taken longer than expected."

According to the March 12 issue of The Edge Malaysia weekly, IOI Properties was believed to have reached long-term financing deals with five banks to the tune of S$1.6 billion.

Amendment note:  The article is revised to make it clear both buildings - One Raffles Quay and Marina Bay Financial Centre - were developed by Cheung Kong, Hongkong Land and Keppel Land. Currently, they are owned by a consortium involving Hongkong Land.

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