Friday 8 June 2012

SP Setia - Expanding into London


-  It was announced yesterday that S P Setia and Sime Darby’s joint bid had been chosen as the winner for the Battersea Power Station. 

-  Both parties have entered into an Exclusivity Agreement with the Joint Administrators to acquire the 38-acre site for GBP400mil (RM2bil) or at GBP242psf (about RM1,200psf).

-  The iconic site would be redeveloped into a mixed development project comprising residential, commercial and office properties. It was also highlighted that both companies have committed to build an underground station at the site and the consortium will contribute GBP200mil-GBP250mil (RM750mil) for this purpose. 

-  Both companies have up to 28 days to conduct further due diligence and to negotiate on the terms and conditions of the acquisition. 

-  There were not many details available, especially on the GDV although it was speculated in the press recently it could be in the region of GBP1.4bil (RM7bil). Similarly, no information was given on the ownership and funding structure of the deal. But more details will be disclosed after the final due diligence is done.

-  Assuming a 40%-50% stake in the development, Setia’s initial outlay would be about RM0.8bil-RM1bil for the acquisition and it would be able to gear up for this easily, with current net gearing at about 10%. Our rough estimates indicate a 5% to 7% boost to our NAV assuming 10%-13% margins.

-  All in, we are excited for Setia because this is a massive deal which takes its overseas venture to five countries and it would provide a rare opportunity for a Malaysian developer to showcase its capabilities in the prime area of London. 

-  But having said that, this development would present a big challenge to Setia and Sime Darby’s execution capabilities, especially when there were three failed attempts to redevelop the site previously. 

-  We are not ruling out another party – also with a strong balance sheet – to join the consortium to ride through the cycles. This is especially true as this project could be NPV negative at least during the construction period – where UK properties are sold based on Build-Then-Sell concept.

Source: AmeSecurities

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