JCorp eyes PBD's untapped value

PETALING JAYA (April 18): For now, survival isn't a problem for debt-heavy Johor Corp (JCorp). Last week's fundraising exercise has given the state-owned investment arm some breathing room to deal with its debt problems. But in the medium term, the company may still need to face the reality of asset sales.

Investment analysts tracking the group believe that putting its properties at Pusat Bandar Damansara (PBD) for sale offers a quick fix that could help JCorp tackle its debt woes and raise additional funds to finance new business ventures.

Analysts said the the two blocks at PBD could fetch between RM700 million and RM1 billion for the state-owned investment arm.

It is unclear how much the PBD buildings contribute to JCorp's recurring income but their rental yields are not attractive.

Financial executives said JCorp has started accepting very short tenancy terms from tenants. What's more, the group has yet to secure a new long-term anchor tenant after the Immigration Department moved out of the premises last October.

"Short-term tenancy agreement may be one way for JCorp to still earn income while waiting to tear down the buildings or sell them off. It should upgrade the buildings but that needs funding," said a property analyst.

JCorp has yet to secure a new long-term anchor tenant after the Immigration Department moved out of the Pusat Bandar Damansara premises last October.

Several plans to redevelop PBD in recent years have not materialised.

In 2009, JCorp's property arm Damansara Asset Sdn Bhd entered into a pact with privately-held Impian Ekspresi Sdn Bhd to redevelop the commercial blocks. But that plan, which valued the proposed redevelopment at roughly RM700 million, is now tied up in a legal battle.

PBD has also attracted foreign interest. Two foreign companies had offered to buy the PBD assets in an open tender exercise, but that plan was called off by JCorp.

Investment analysts and property industry executives said JCorp's move to accept short-term tenancy may indicate that JCorp is reviving plans to either redevelop the area or put it up for sale.

In general, property owners seek rental agreements that stretch for as long as three years to ensure a steady income stream.

"Rental rates at the PBD buildings are dropping because their conditions are deteriorating. How can you compete with the offices nearby that offer better amenities?" said a source.

But PBD is in a valuable location, making it ripe for redevelopment if JCorp wants to raise the occupancy.

The mass rapid transit network will run through the area and a station has been earmarked at PBD. There is the added attraction of new projects in the area, such as Lion Group's Twins project and Guocoland's Damansara City. This could be a catalyst for the appreciation of the value of PBD.

Lion Group's Twins, a high-end condominium development, is fetching at least RM929 psf. Analysts said the selling prices of the surrounding projects could be a yardstick for the valuation of PBD.

JCorp recently proposed a government-guaranteed RM3 billion sukuk. The state-owned investment arm doesn't view the sukuk issuance as a refinancing exercise. It considers the issuance a fund-raising exercise, which will be "carried out through book-building" and "open for subscription to the investing community".

"The proposed sukuk issuance is made within the bigger plan to restructure JCorp. The latter has as its objective the improvement of JCorp's overall position — financial, business or otherwise — so that it can further contribute towards development of the state of Johor and the nation," said JCorp in a statement to The Edge Financial Daily.

JCorp directly owns a 42.48% stake in hospital chain operator KPJ Healthcare Bhd, a 55.3% interest in planter Kulim (M) Bhd and 43.27% of property developer Damansara Realty Bhd.