GSH makes property forays into Sabah

IT appears that GSH Corp's next chapter as a property developer will be written closer to home, with its initial forays into China having fallen through.

The company expects to launch its first residential project in Kota Kinabalu, Sabah, in the first half of this year.

GSH chief executive Gilbert Ee announced on Wednesday that the company has made a 510 million ringgit (S$196.6 million) cash investment in the Sutera Harbour Resorts project and put an undisclosed sum into two neighbouring land parcels.

Plans have been drawn up to build more than 400 units of luxury residences in the first land bank, a 4.9 ha (12.1-acre) waterfront site, Mr Ee said.

The company also hopes to launch a residential project in the second plot of land within two years.

Luxury apartments in Kota Kinabalu now go at between RM1,200 and RM1,800 per square foot, he noted.

In the second half of the year, GSH expects to launch a residential and commercial project in Kuala Lumpur, in the city's exclusive "Golden Triangle" area on Jalan Kia Peng. This deal was announced last Nov 29.

The quick progress in Malaysia comes in stark contrast to GSH's moves since 2012, when businessman Sam Goi of popiah skin maker Tee Yih Jia fame rescued the loss-making electronics distributor with an eye on turning it into a real-estate developer.

A number of memoranda of understanding were inked in China to develop real estate there, but the deals all fell through for various reasons. In October, GSH went to its shareholders to seek a mandate to broaden its scope to include South-east Asia.

The Jalan Kia Peng deal followed soon after.

Mr Ee described the Sutera deal as a serendipitous confluence of circumstances. GSH executives who had been in Sabah about a year earlier to explore commercial and residential property investment opportunities had stayed at a Sutera hotel.

When they returned to Singapore, they learned that the hotel was up for sale.

GSH's RM510 million investment in The Sutera Harbour Group comprises RM250 million for a 77.5 per cent equity stake and RM260 million in preference shares. Another RM190 million in preference shares came from the TYJ Group of GSH chairman Sam Goi.

Mr Ee described the site - developed by Singaporean Edward Ong, who will control the remaining 22.5 per cent of the resort - as prime waterfront property with easy access to the city, top tourist sites and the airport.

Tourism statistics are also favourable, Mr Ee said. Figures from the Sabah government indicated that there had been an 18.3 per cent year-on-year growth in total tourism to the East Malaysian state for the January-to-October period last year.

The number of tourists from South-east Asia fell 12.3 per cent during that period, but visitors from north-east Asia, especially China, jumped by 58.9 per cent.

It was also a big plus point for GSH that Sutera, which was under distress and being sold as the resort sought fend off creditors, came at an affordable price.

GSH will not have to raise additional capital to fund the acquisitions. Mr Ee said he expects to fund the planned residential developments using project financing.

The resort had posted a nine-month net profit of RM15.2 million for the period to Sept 30, 2013, which will contribute positively to GSH, which recorded a net loss of S$1 million in the half-year ended June 2013.

Mr Ee said: "We always look for nice sites; (they) must be something we like, but then the second criterion - what is the financial opportunity there? Are we getting in at the right price? There are many nice sites, but they are priced at a level that we don't feel presents an opportunity."

He said he did not think GSH would run into the same debt problems that the current Sutera management ran into, largely because Sutera's offshore-currency debt problems stemmed from the devaluation of the ringgit during the financial crises over the years. Proceeds from the investments by GSH and Mr Goi's privately held TYJ will be used to discharge existing debts by Sutera.

Mr Ee said: "It's a combination of the currency crisis and subsequently enlarging the debt base to a level which was difficult to sustain, given the size of the project.

"But now the debt has been cleared; post-restructuring, once the debt is cleared out, the asset performance will be much better."

He said that GSH is now in talks to explore other investments, but that Kuala Lumpur and Kota Kinabalu appear to make a better investment case than the hotter Iskandar area in Johor.

"Iskandar is very attractive, but it's a Johor-Singapore play," he said. "There is a lot of supply coming out in Iskandar ... It will be quite competitive, I think. There will still be interesting projects to do, but you have to be selective. If I just look at it financially at the opportunities being shown to us, generally the KL and KK ones look better."

China is still on the radar, but getting a project there will take time, he said, adding: "China is still in the pipeline ... but Malaysia is quite different. All the parcels that we have are ready to go. I don't have to level a mountain or fill in a pond."

GSH shares closed at 8.7 cents yesterday, up by 7.4 per cent or 0.6 cent.