Will Liew exit derail Battersea?

By Khairie Hisyam

The Battersea redevelopment project’s chairman Liew Kee Sin has inked a personal double-digit billion deal with an Irish developer for three residential projects in London, where the Battersea project is ongoing. Will his exit disrupt Battersea’s progress? More importantly, can he stay even so?

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A mammoth undertaking, the Battersea Power Station redevelopment project had been remarkably successful so far. But the spectre of its chairman’s possible departure is casting a shadow on the project.

One week ago it surfaced that Battersea project chairman Liew Kee Sin had tendered his resignation, apparently waiting for a response from the project’s shareholders.

Liew’s resignation came a week after news of a joint venture deal worth £2.2 billion involving his private vehicle, Eco World Investment Co Ltd, with Irish developer Ballymore Group, to develop three residential projects in London.

The deal will see Liew’s Eco World Investment, co-owned by his long-time right-hand man Voon Tin Yeow, form a joint venture company that will acquire three sites for the proposed projects from Ballymore for £428.7 million.

Named Eco World Ballymore Holding Co Ltd, the company will be 75% owned by Eco World Investment with Ballymore owning the remaining 25%.

Word of the personal deal, clearly in conflict with his position at Battersea, sparked concerns among the Battersea project’s shareholders, who told KiniBiz that there will be implications on Liew’s position.

The shareholders of the Battersea project are property developer SP Setia and plantation-based conglomerate Sime Darby, both holding 40% interest each, as well as pension fund Employees Provident Fund (EPF) which holds the remaining 20%.

The joint venture deal for the project was signed on July 4, 2012 in Jersey, Channel Islands and led to the formation of Battersea Project Holding Company Limited as the holding company.

In an emailed response to KiniBiz, EPF chief executive officer Shahril Ridza Ridzuan said Liew’s resignation notice had not been decided upon.

“At this point, it would be premature for us to comment (on the matter),” said Shahril to KiniBiz. “The shareholders of Battersea will be convening to discuss the matter soon and the company will make an announcement at the appropriate time.”

At publishing time, KiniBiz is still waiting for a response to queries separately sent to Battersea’s other shareholders. Liew did not respond to previous KiniBiz queries and declined a previous request for interview.

Road to Battersea

A famous London landmark, the Battersea Power Station traces its history to a coal-fired power station built in the 1930s and was named after the Battersea district in south London.

A second power station was built to the east of the first in the 1950s, also part of the Battersea Power Station which comprises a single building. The older station was decommissioned in 1975 and the second followed suit eight years later.

Notably the Battersea Power Station is a Grade II* listed building on the United Kingdom’s Statutory List of Buildings of Special Architectural or Historic Interest, a status designated on Oct 14, 1980.

Buildings placed in the list require special permission from the local planning authority for demolition, extension or any other alteration work. Grade II* is the one of three categories of listed buildings and specifies that the building is of particular importance with more than special interest.

The highest classification is Grade I, given to buildings of exceptional interest, and the other category is Grade II, referring to buildings of special interest that warrants every effort for preservation.

This means the power station falls under the care of the English Heritage or its full name Historic Buildings and Monuments Commission for England, a statutory body that advises on the care of the historic environment in England.

Following the closure of the power station in the 1980s, there had been several proposals to redevelop the site. Among others these included a theme park proposal soon after the closure as well as a planned commercial plus residential development project, but most of the proposals either did not take off or ran into financial difficulties.

The Malaysian consortium comprising SP Setia, Sime Darby and EPF came into the picture after the Battersea Power Station was put for sale on the open market for the first time in history in February 2012.

Edging out other bidders that included London Stock Exchange-listed Berkeley Group, Livingstone brothers’ London and Regional as well as Chelsea Football Club, the consortium unveiled a seven-phase redevelopment project spanning 15 years with the original structure as the central focus.

The entire project is estimated to have a total gross development value (GDV) of £8 billion (RM42 billion), though the value may go up to as much as £10 billion (RM52.5 billion).

Spanning 39 acres of freehold land, the original land cost of £400 million is only 5% of the total GDV and the commercial component of the project will be 57% with the rest residential.

To-date the first two phases have practically sold out while the third phase, unveiled in October last year, saw 50% take-up rate, with about 1,300 units in total sold thus far.

And while the units have yet to be built, buyers are already seeing returns, said Liew.

“For phase 1 customers of the Battersea Power Station, the good news is that your properties have appreciated a lot in value,” said Liew in a radio interview last September. “The increase in value ranges from 15% to 60% depending on which lot you have bought.”

With the Battersea project seeing remarkable success under Liew’s watch thus far, however, can it maintain momentum without him?

Battersea without Liew?

The question, however, had been asked before. In the same radio interview on BFM, Liew spoke of the biggest challenge facing the Battersea redevelopment project, which he felt entails convincing people that the project’s shareholders can turn the local London icon into a global icon.

“The amount of recognition given to Battersea is tremendous,” said Liew in the interview. “We must make sure this is translated in terms of people who visit us.”

And this can only happen if the development goes with the right concept, design and more, he added. “That’s why for Phase 3, we’re bringing Frank Gary, the No. 1 American architect, to design his famous flower building.”

However the big question was posed to Liew: will that vision remain if he leaves? Will people still have the belief?

“I’m sure they will be,” said Liew in response. “The shareholders will have to find the best guys available in Malaysia or otherwise to continue.”

Separately Liew had also said last year that the decision on whether he will be retained as Battersea project chairman beyond September 2015, when his tenure is slated to end, is up to shareholders.

“That’s up to shareholders. My term as chairman ends in September 2015. If I do a good job, then up to them to decide. But if I do a lousy job…ultimately all of us, we must be based on performance,” he told reporters previously.

But replacing Liew is no easy task. He is widely credited for the rise of SP Setia from a relative unknown in the 1990s to Malaysia’s foremost property brand up to his departure last year, which began in 1996 when he became CEO and president of the developer.

Indeed Liew’s exit from SP Setia last April brought with him the competitive edge that propelled SP Setia to the top, said CIMB Research in a previous report.

“He is synonymous with SP Setia,” said CIMB head of research Terence Wong. “Liew brings ambition, vision, cohesion and a never-say-die attitude to SP Setia and his leadership will be sorely missed.”

Some would say the same for the Battersea redevelopment project as the overwhelming response to its maiden launch silenced critics. And observers have remarked that the ‘Liew factor’ is very much evident, with one source close to the project remarking previously that Liew is “a fantastic marketing man”.

However, even if Battersea’s prospects suffer from Liew’s exit, does it justify him staying given the conflict of interest between his role at Battersea and his personal Ballymore joint venture deal?

It is worth reiterating that the Battersea project is expected to last 15 years, meaning Liew is unlikely to stay for the duration of the project in any case. In addition an exit now would not leave the Battersea project high and dry given the momentum it has built.

Following the success of the three phases launched so far, Liew had remarked previously that the remaining four phases will be “pure profit to the owners”.

“By starting phase 1, phase 2 and phase 3, our cash flow would be able to service our debts — that means our land costs, our infrastructure costs. So when come phase 3, we will slow down our sales,” said Liew in a previous radio interview. “Because there’s no hurry to sell anymore. Because we are more than break-even.”

Shareholders reluctant

Notably the Battersea project’s shareholders seemingly have an inexplicable reluctance to show Liew the door even before the Ballymore deal.

In announcing Liew’s notice of resignation in January 2014, SP Setia chairman Zaki Azmi said that Liew will remain chairman of the Battersea project and managing director of SP Setia’s Qinzhou Industrial Park project in China until September 2015 to “help ensure the smooth and successful implementation of these internationally prominent projects”.

However, less than a week after April 30 – Liew’s last day at SP Setia – he emerged as a non-executive board member in another Bursa Malaysia-listed developer Eco World Development Group, in which his son is a 35% shareholder alongside a huge number of former SP Setia senior staff.

Despite the potential conflict of interest from his board position at Eco World as well as his roles in the two SP Setia projects, there was no action from SP Setia or its majority shareholder Permodalan Nasional Berhad or PNB.

Similarly, when Eco World announced in October last year that Liew is proposing a special purpose acquisition company (Spac) listing focusing on international property markets, there was no action to remove him from his positions at Battersea and Qinzhou projects.

Sources close to the matter told KiniBiz at the time that while there is potential conflict for interest in the proposed Spac, it is not yet a certainty given that approval from the Securities Commission is required before it can proceed.

“But (shareholders) are closely monitoring the development,” said the source.

Sime Darby president and group chief executive Mohd Bakke Salleh, when met in end-November last year, said that the issue was not being discussed yet then, adding that the matter of Liew’s position will be attended to in 2015.

“Sometime next year this issue will need to be addressed,” said Mohd Bakke last November. “I don’t think he will be taking on the chief executive officer or managing director position again — I wouldn’t do that if I were in his shoes.”

Mohd Bakke even raised the possibility of a special deal to retain Liew at Battersea given that the latter is not in the driving seat at Eco World.

The decision ultimately rests with PNB, it seems, as the majority shareholder in both SP Setia and in Sime Darby. This means PNB collectively controls 80% equity in the Battersea project.

However PNB had maintained its silence over the issue and had not responded to previous KiniBiz requests for comment.

Wrong signal

In any case, retaining Liew following the Ballymore deal would send the wrong signal to the market given the conflict of interest, especially since the joint venture was for projects located in the same city as Battersea.

Among others the deal raised the question of whether Liew could have brought the Ballymore possibility to Battersea Project Holding Company for its shareholders to consider and pursue.

According to the United Kingdom Companies Act 2006, directors of a company have a duty to promote the success of the company as well as a duty to avoid conflicts of interests.

“A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company,” reads Section 172 of the Act.

In addition Section 175 of the Act spells out that a director “must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company … this applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or property)”.

Similarly Malaysia’s Companies Act 1965 spells out in Section 132 that a director must “act honestly and use reasonable diligence in the discharge of the duties of his office”.

This duty in turn includes the duty to “act in the best interest of the company and to avoid conflict of interest”, according to a previously published booklet by the Companies Commission of Malaysia (CCM).

“The director must not put himself in a position where his duty and interest conflict,” said CCM in the booklet. “Thus a director must not misuse his powers to gain advantage for himself of persons connected to him at the expense of the company.”

However, the Battersea Project Holding Company, on which board Liew sits as chairman, was incorporated in Jersey, the largest of the Channel Islands, a British crown dependency located off the coast of Normandy, France.

Similarly KWASA Global, a wholly owned EPF subsidiary which purchased the Battersea Power Station site, was also incorporated in Jersey.

This means the Battersea project Holding Company is presumably subject to Companies (Jersey) Law 1991, in which Section 74 outlines the duty of a director to “act honestly and in good faith with a view to the best interests of the company”.

In any case, the private vehicle Liew used for the Ballymore deal, Eco World Investment Co Ltd, raises a different conflict. As director of Bursa Malaysia-listed Eco World Development Group, is it appropriate for Liew to use the brand for his own personal venture?

The question then emerges of who really owns the Eco World brand.

Tomorrow: Who owns the Eco World brand?