Malaysia’s leading property developer group SP Setia Group placed out 320.7 million new shares privately, raising almost RM 1 billion because they need working capital to finance their recent projects, even more than for boosting its stock’s liquidity, analysts said. They said more share issues may be expected for the future despite the latest sale at near historical low prices.
“Liquidity is only the second reason. The primary reason is Battersea funding,” RHB Investment’s research analyst Loong Kok Wen told KiniBiz. “In the next 1-2 years, they have said that they need RM 1 billion working capital just for the Battersea development.”
The new share sale would lower the company’s gearing (debt to equity ratio) to about 35 percent from about 60 percent, which analysts said is a more comfortable level. SP Setia has recently ventured into uncharted territories, chalking up huge development projects in London, Australia and China. The company’s flagship project is a RM40 billion Battersea power project, branded Malaysia’s biggest property development overseas. It holds a 40 percent stake in partnership with Sime Darby and the Employees Provident Fund (EPF) .
SP Setia announced on Friday that it has placed out as much as 15 percent of its new enlarged share capital to domestic and foreign institutional investors. The new shares were priced at RM2.94 per share, a discount of 6.87% to the 5-day volume weighted average market price. It raised RM942.9 million.
The price of its latest share sale is near the historical stock price bottom, analysts said.
SP Setia’s share prices slumped from a peak of RM3.80 per share in September last year, shortly before it was taken off the MSCI Malaysia Index due to the illiquidity. A foreign funds sell off has led to lacklustre trading in SP Setia, with its share price ranged bound at RM3.10-3.20 since December. Permodalan Nasional Bhd (PNB) is SP Setia’s largest shareholder, with over 70%. The company’s president and chief executive officer Liew Kee Sin has around 5.5%.
SP shares traded at RM3.26, up 15 sen on the Kuala Lumpur Stock Exchange on Friday.
Analysts said that they were mostly neutral on the latest share placement as it has already been factored in, after its announcement last August.
“We are neutral about this,” an analyst from TA Securities, who declined to be named, said. “Dilution is not so good for existing shareholders but the fund-raising is for future earnings growth.”
Another analyst from HwangDbs Vickers Research, Yee Mei Hui, said that they have also factored in the share sale, announced in late last year, and maintained a “BUY” on the stock based on Battersea and other SP Setia projects.
Going forward, some analysts however said they were a little concerned about the 15-year Battersea project and also whether the leadership of SP Setia’ will continue under CEO Liew. The 39.5-acre Battersea, an old power station site, was purchased for £400 million (about RM2 billion) in 2012 and is estimated to have a gross development value (GDV) of £8billion (about RM40 billion).
“The company’s risk profile has shifted from a local base to a company with much foreign exposure,” RHB Investment’s Loong said. “There is no doubt about the company’s fundamentals but if Tan Sri Liew’s contract as CEO will not be extended after two years, the premium for SP Setia may narrow.”
RHB Investment has a “neutral” rating on SP Setia.
Only the first phase of the iconic Battersea project with GDV of about RM4 billion, or 10 percent of total estimated GDV, has been launched. Brisk bookings were reported for the 800 units of the mixed property development offered in London, Kuala Lumpur, Hong Kong and Singapore when it was opened for sale. Analysts estimate that Battersea now makes up almost a fifth of the total GDV of all the company’s projects.
But SP Setia will not be able to book any profits on Battersea at least until 2016 when first phase is completed and handed over. This is usual practise for UK real estate developers, analysts said.
“We are not so concerned about capital for its completion because SP Setia has strong partners but the take up rate… whether people would like to buy into the Battersea development, ” said TA Securities analyst.
The Battersea power station was decommissioned in 1983 and has stood empty while a series of plans to redevelop it foundered although recent sales of 600 units of the first phase, with townhouses ranging from £343,000 for a studio to £6 million for a penthouse were sold briskly, according to the London Evening Standard.
Another report noted that Berkeley Group Holdings Plc (BKG), the U.K.’s second largest homebuilder by value, is marketing penthouse apartments through its St. George’s unit, which is about 5-minute drive from the derelict power station.
SP Setia said in January that it expected RM5.5 billion sales for FY13, a 30 pct increase year on year and to double its earnings from 2016-2017 onwards.
Separately, SP Setia also announced this week the acquisition of 195 acres of leasehold land in Rawang (current golf club in Templer Park Resort) to be developed into a mixed residential and commercial properties with a potential gross development value (GDV) of RM1.24 billion.