Battersea to cost over £600m

KUALA LUMPUR (June 25): The Battersea Power Station site in London is expected to cost S P Setia Bhd and Sime Darby Bhd over £600 million (RM3 billion), taking into account the additional costs to extend the London tube line to the site and the restoration of a power generation system.

The cost for the 15.6ha land where the idled power station is located is £400 million while the extension of the Northern Line to reach the site would cost another £200 million, said CIMB Research in a recent note. It added that S P Setia and Sime, which are soon to ink a deal to acquire the site, also need to bear the restoration cost for a carbon-neutral power generation system to supply electricity to the integrated Battersea project.

However, CIMB Research said the land cost percentage would still be low compared to the potential gross development value (GDV) of the project, which S P Setia has estimated to be £8 billion. "Profit margins should be higher than the margins on S P Setia's projects in Malaysia," the research firm said.

S P Setia told analysts in a briefing last week that the agreement is expected to be signed on July 4, with another three months to complete the deal.

"Under the original plan by the previous landowner, the Battersea project was supposed to take 15 years to complete. But given S P Setia's track record in executing projects ahead of schedule, that time frame could well be shortened," said CIMB Research who had attended the briefing.

It added that S P Setia's net gearing is expected to rise from 0.33 times to 0.45 times due to fund-raising activities for the project.

"We would not exclude the possibility of an equity issue if net gearing goes well above 0.5 times. While the group's profitability could enjoy a big boost, contributions to the bottom line are likely to only start coming in through financial year 2016 ending October and financial year 2017," it said.

As at April 30, S P Setia's cash, bank balances and deposits amounted to RM1.22 billion while borrowings stood at RM2.4 billion.

Maybank Research said phase 1 of the Battersea project is expected to launch in April 2013, and it assumes a 15% pre-tax margin over a 10-year development period.

On June 7, S P Setia and Sime announced they had entered into an exclusive agreement with the joint administrators and receivers of the property — Alan Bloom and Alan Hudson of Ernst & Young LLP — to acquire Battersea Power Station's assets which include its 15.6ha tract. It is learnt that the Employees Provident Fund will participate as an investor of the project once S P Setia and Sime finalised the purchase of the land.

The Malaysian consortium have defeated two other interested parties — Russian tycoon Roman Abramovich, who owns Chelsea Football Club, and British property investor Godfrey Bradman to acquire the iconic asset in London.

According to Bloomberg data, S P Setia has seven "buy", 13 "hold" and three "sell" calls with a consensus fair value of RM4. Since the announcement was made on June 7, S P Setia's share price has gained nine sen to close at RM3.86 last Friday.

This story appeared in The Edge Financial Daily on June 25, 2012.

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