KUALA LUMPUR: Eastern & Oriental (E&O) is working on disposing more non-core assets to lighten its debt load, according to a recent meeting with the management, says PublicInvestment Bank (PIVB) Research.
Recently, E&O had roped in Kumpulan Wang Persaraan (Diperbadankan) (KWAP) as its strategic partner for E&O’s second phase of Seri Tanjung Pinang (STP 2A), a township being developed on reclaimed land in Penang with an estimated gross development value of RM17bil.
The STP 2A is E&O’s flagship property project in Penang and KWAP or the Retirement Fund (Incorporated) acquired a substantial equity interest in the listed developer in a deal worth a total of RM887.7mil.
KWAP will also subscribe to 66.1 million new shares in E&O. The price of the shares to be transacted is between RM1.84 and RM1.94 each, costing KWAP at least RM121.6mil.
This corporate exercise is estimated to raise RM900mil for E&O via RM130mil in restricted issue stocks and RM766mil for its 20% stake in STP2A.
To recap, PIVB Research said E&O’s total capital commitment for STP2A is estimated at RM1.8bil (including infrastructure costs) and it still has 507 acres remaining to be reclaimed in other phases.
The assets that could be disposed, among others, include its hotels (such as Straits Quay and Lone Pine) and certain landbank that could collectively be sold for more than RM400mil.
Also, it could also dispose its overseas landbank that was purchased for more than RM450mil a few years back.
“This is important in our view, to manage its gearing (currently at c.0.74 times) and liquidity. As for STP2A, while the emergence of KWAP as its strategic partner is positive, the key issue is still selling the properties with the average selling prices (ASP) said to be around RM1,300 psf for the proposed new projects,” it said.
PIVB Research said sales for Andaman Condominiums are still slow with only 50% sold so far (Block 1G and 1H were launched back in 2012 and 2013 respectively at RM1,300-1,400 average selling prices).
“Maintain Neutral but TP is nudged higher at RM2 (from RM1.80 previously), pegged at 50% discount to RNAV.
“E&O is working on disposing certain assets such as Straits Quay Retail (270,000 net lettable area , RM233mil book value), Lone Pine Hotel (90 rooms, RM69mil book value) and certain non-strategic landbank such as its 0.9-acre land at Jalan Liew Weng Chee (off Jalan Yap Kwan Seng) that has market value of RM55mil.
“If the price is right, it will also offload its overseas undeveloped landbank that is Hammersmith and Esca that were purchased for a total of c.RM450mil.
“Hence, the potential proceeds from the resource conversion are estimated to be about RM900mil. Together with KWAP’s investment, the total capital of RM1.8bil will be handy for its capital expenditure and focus on generating cash and strengthening balance sheets.
“While positive with the emergence of KWAP as its 20% equity partner for STP2A, we believe that the group still needs to scour for partners that could open more new markets for its mammoth development in STP2.
“Sales for Andaman Condominium are still slow with the average selling prices of RM1,300-1,400 psf, which are incidentally also the touted selling prices for STP2A.
“Hence, we reckon unless the group starts selling in new markets, it will be challenging for STP2 to reap in sales given the currently-tough trading environment. As for progress, Phase 2A works have commenced and are on track to be completed by June 2018,” PIVB Research said.
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