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Quek’s great ‘escape’ from Beijing project
by Cals Mon 31 Aug 2015, 21:12
Quek’s great ‘escape’ from Beijing project
Saturday, 29 August 2015
By: M. SHANMUGAM
[You must be registered and logged in to see this image.]
Auspicious moment: Quek (third from left) cutting the ribbon during the opening ceremony of Guoson Mall in Beijing in this file picture taken in 2011. The others are (from left) GuocoLand Ltd chairman Sat Pal Khattar, China’s Overseas Chinese Affairs Office director Li Haifeng, Dongcheng district party secretary Yang Liuyin and Guoco Group Ltd president and CEO Kwek Leng Hai
Last week, Guocoland Ltd, the property listed company of tycoon Tan Sri Quek Leng Chang disposed of its interest in an integrated property development project in Beijing for 10.5 billion yuan or RM6.8bil without realising the potential value of the asset.
The acquirer of the project is a company that invests and manages distressed assets.
The purchaser is paying 4.5 billion yuan to buy over the rights to develop the project and 6 billion yuan in project liabilities.
Why China Cinda Asset Management of Hong Kong, a company that specialises in distressed assets is taking over the project and not another property developer is simple – the Beijing project has been a sore point for Guocoland and Quek.
It has been plagued with legal disputes for almost eight years now and Quek has not been able to untangle the legal mess. Industry officials say Guocoland has been looking for a buyer for the project for the past three years and finally found one.
Based on the announcement, Guocoland is carrying the development – called the DZM Project – in its book at 8.46 billion yuan. The disposal is expected to generate a net income of about 1.58 billion yuan for the company.
A look at the Guocoland annual report indicates that the developer invested in the DZM Project in 2007. The entry eight years ago was at 5.8 billion yuan for a 90% stake.
According to Guocoland’s annual report, it sunk in an aggregate 3.22 billion yuan and the balance was withheld pending the resolution of legal disputes involving one of the vendors.
The dispute is for the recovery of loans that the vendor has with two banks in China and the financial institutions staked a claim on the project.
After eight years, the legal disputes have not been resolved.
This explains why Guocoland and Quek did not make a pile from the disposal.
Considering that property prices in Beijing has skyrocketed since 2007, the net gain to the company is only 1.58 billion yuan from the integrated development project that is to build more than 90,000 square metres of office space, retail and apartments. The returns are far from what can be deemed as a good venture.
According to property consultants, the development in one of Beijing’s choice parcels should could easily fetch more than 25 billion yuan at today’s market value. But Guocoland only managed to get less than half of it.
It has been a lengthy legal process for Guocoland, costing time and money.
Quek, who is known for buying low and selling high, seems to have found a mismatch in the Beijing project.
Nevertheless, the disposal indicates that the tycoon is prepared to settle for less and put his money elsewhere.
The sale comes at a time when global capital markets are tumbling due the contrasting dynamics in two of the world’s largest economies.
In the US, the economy is well on its path of recovery and the Federal Reserve is looking at a rate hike.
In China, the economy is slowing and the People’s Bank of China has cut rates again this week. The one year lending rate is cut by 25 basis points to 4.6% -- the fifth time it has been reduced since November last year.
When the dynamics change, valuations change and portfolio adjustment is required. Quek would have seen this.
Anyway he is not alone when it comes to adjustments to property portfolio.
Two weeks ago, Tan Sri Desmond Lim of the Pavilion group disposed of a 49% stake in Pavilion Damansara Heights to Canada Pension Plan Investment for RM485mil (C$170mil). It was the first venture for the Canadian fund in this region.
Lim’s Pavilion Damansara Heights is a massive investment for the low profile tycoon.
He has 15.84 acres there and investment into two parcels of land – one with buildings – is estimated at close to RM1bil.
Surely Lim knows that there is great potential to unlock in the project. But the entry price of the Canadian pension fund does not seem to be at a huge premium.
What this means is that Lim would rather get a partner and reduce his burden of developing the Pavilion Damansara Heights than carrying it all on his own when the property market is going through a slowdown.
Smart investors always know when to take some money off the table.
They know when to reduce the risk and maximise their capital.
They are passionate about their investments but not in love. That is why they are not shy to take some money off the table when the need arises.
In the case of Quek, when Guocoland went into the Beijing project in 2007, they would have seen enormous potential. They were right in reading the market.
But when the project itself could not get going as expected, it is better to walk away with what can be recovered and free up the capital. That is a lesson for all in the current volatile times.
Saturday, 29 August 2015
By: M. SHANMUGAM
[You must be registered and logged in to see this image.]
Auspicious moment: Quek (third from left) cutting the ribbon during the opening ceremony of Guoson Mall in Beijing in this file picture taken in 2011. The others are (from left) GuocoLand Ltd chairman Sat Pal Khattar, China’s Overseas Chinese Affairs Office director Li Haifeng, Dongcheng district party secretary Yang Liuyin and Guoco Group Ltd president and CEO Kwek Leng Hai
Last week, Guocoland Ltd, the property listed company of tycoon Tan Sri Quek Leng Chang disposed of its interest in an integrated property development project in Beijing for 10.5 billion yuan or RM6.8bil without realising the potential value of the asset.
The acquirer of the project is a company that invests and manages distressed assets.
The purchaser is paying 4.5 billion yuan to buy over the rights to develop the project and 6 billion yuan in project liabilities.
Why China Cinda Asset Management of Hong Kong, a company that specialises in distressed assets is taking over the project and not another property developer is simple – the Beijing project has been a sore point for Guocoland and Quek.
It has been plagued with legal disputes for almost eight years now and Quek has not been able to untangle the legal mess. Industry officials say Guocoland has been looking for a buyer for the project for the past three years and finally found one.
Based on the announcement, Guocoland is carrying the development – called the DZM Project – in its book at 8.46 billion yuan. The disposal is expected to generate a net income of about 1.58 billion yuan for the company.
A look at the Guocoland annual report indicates that the developer invested in the DZM Project in 2007. The entry eight years ago was at 5.8 billion yuan for a 90% stake.
According to Guocoland’s annual report, it sunk in an aggregate 3.22 billion yuan and the balance was withheld pending the resolution of legal disputes involving one of the vendors.
The dispute is for the recovery of loans that the vendor has with two banks in China and the financial institutions staked a claim on the project.
After eight years, the legal disputes have not been resolved.
This explains why Guocoland and Quek did not make a pile from the disposal.
Considering that property prices in Beijing has skyrocketed since 2007, the net gain to the company is only 1.58 billion yuan from the integrated development project that is to build more than 90,000 square metres of office space, retail and apartments. The returns are far from what can be deemed as a good venture.
According to property consultants, the development in one of Beijing’s choice parcels should could easily fetch more than 25 billion yuan at today’s market value. But Guocoland only managed to get less than half of it.
It has been a lengthy legal process for Guocoland, costing time and money.
Quek, who is known for buying low and selling high, seems to have found a mismatch in the Beijing project.
Nevertheless, the disposal indicates that the tycoon is prepared to settle for less and put his money elsewhere.
The sale comes at a time when global capital markets are tumbling due the contrasting dynamics in two of the world’s largest economies.
In the US, the economy is well on its path of recovery and the Federal Reserve is looking at a rate hike.
In China, the economy is slowing and the People’s Bank of China has cut rates again this week. The one year lending rate is cut by 25 basis points to 4.6% -- the fifth time it has been reduced since November last year.
When the dynamics change, valuations change and portfolio adjustment is required. Quek would have seen this.
Anyway he is not alone when it comes to adjustments to property portfolio.
Two weeks ago, Tan Sri Desmond Lim of the Pavilion group disposed of a 49% stake in Pavilion Damansara Heights to Canada Pension Plan Investment for RM485mil (C$170mil). It was the first venture for the Canadian fund in this region.
Lim’s Pavilion Damansara Heights is a massive investment for the low profile tycoon.
He has 15.84 acres there and investment into two parcels of land – one with buildings – is estimated at close to RM1bil.
Surely Lim knows that there is great potential to unlock in the project. But the entry price of the Canadian pension fund does not seem to be at a huge premium.
What this means is that Lim would rather get a partner and reduce his burden of developing the Pavilion Damansara Heights than carrying it all on his own when the property market is going through a slowdown.
Smart investors always know when to take some money off the table.
They know when to reduce the risk and maximise their capital.
They are passionate about their investments but not in love. That is why they are not shy to take some money off the table when the need arises.
In the case of Quek, when Guocoland went into the Beijing project in 2007, they would have seen enormous potential. They were right in reading the market.
But when the project itself could not get going as expected, it is better to walk away with what can be recovered and free up the capital. That is a lesson for all in the current volatile times.
Cals- Administrator
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