Thursday, 4 May 2017

(The Star) PIVB Research: E&O to sell more non-core assets

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 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 of, 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 of 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 were 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 of 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.”