Sunway in JV with Khazanah in RM12b development

Sunway Bhd (Dec 20, RM2.43)
Maintain neutral with target price of RM2.55 from RM2.28:
Sunway Bhd's wholly-owned subsidiary Sunway City Sdn Bhd (Suncity) has entered into an agreement with Dayang Bunting Sdn Bhd, a wholly-owned subsidiary of Khazanah Nasional Bhd to establish a JV company, Semerah Cahaya Sdn Bhd (SCSB).

SCSB will acquire two parcels of land in Zone F, Medini Iskandar, measuring 276.4ha from Global Capital and Development Sdn Bhd for a total purchase consideration of up to RM745.3 million.

A 99-year lease interest will be granted by Iskandar Investment Bhd commencing in 2012. The lease will be extended for a further 30 years with the extension premium estimated to be 10% of the final purchase consideration.

SCSB will conceptualise, manage, implement and develop the land into an integrated township development. Sunway will manage the overall operations of SCSB, with a management team lead by a CEO and COO appointed by Sunway.

SCSB will also apply for approved developer status to enjoy various incentives such as exemption on income tax, bumiputera quota, low-cost housing requirement and minimum threshold of foreign purchase.

The purchase consideration of RM745.3 million will be funded by equity investment of RM360 million and borrowings of RM385 million. Additional equity of RM198 million and borrowings of RM215 million will be invested to finance the lease extension premium of the land and working capital of the project.

Sunway's initial equity investment is RM136.8 million or 38% of the total shareholdings of the JV. Nevertheless, Sunway will subscribe to additional shares worth RM198 million in four annual tranches of RM49.5 million, commencing on the 18th month anniversary of the date of the lease purchase agreement. With the additional subscription, Sunway will eventually own 60% of SCSB.

The purchase consideration of RM745.3 million translates into RM24.70 psf. The land price in Zone F is significantly lower than the RM65 psf average land price of UEM Land's Lifestyle Retail Mall and [email protected] North in a more established location.

UEM's project is directly connected to Legoland, hence should command a premium over Sunway's land. The land price in Zone F is also lower than Eastern & Oriental Bhd's Medini Central Wellness Township. Average land price for the Wellness Township was RM38 psf.

Zone F's purchase price could go slightly lower as there will be a further discount on the purchase price if the transaction is completed before May 2012. — MIDF Research, Dec 20

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