Too good to pass up

IT was an opportunity too good to pass up. Tan Sri Liew Kee Sin decided to acquire three large-scale residential projects in London prior to obtaining an approval for the proposed listing of Eco World International Bhd, a special-purpose acquisition company (SPAC).

“By right we should raise the money first then only look for a project. But this project came along and as a businessman, I did not want to lose the opportunity.

“I decided to go ahead and buy with my own money. I bought it first and then will give the first right of refusal to the SPAC. But of course, the SPAC must go through its own procedure whereby the Securities Commission (SC) must approve it. Even if they approved it, you must obtain SC and shareholders’ approval later on to acquire the assets,” Liew tells StarBizWeek.

He discloses that it has not obtained any feedback from the SC on the approval of the SPAC but is “in consultation” with the regulator.

The SPAC, which is targeting to acquire property development projects overseas, is led by the property magnate, Datuk Teow Leong Seng, Datuk Heah Kok Boon and other experienced team members.

Last week, Eco World Investment Co Ltd (EWI), a private vehicle controlled by Liew and Datuk Voon Tin Yow, acquired a 75% stake in the developer of three large-scale residential projects in London with a total gross development value (GDV) of £2.2bil (RM11.9bil).

EWI is a private company incorporated in Jersey, Channel Islands with a 70:30 shareholding held by Liew and Voon.

UK-based Ballymore Group owns the remaining 25% in the joint-venture company Eco World Ballymore Holding Co Ltd (EcoWorld-Ballymore).

“As an entrepreneur, I did not want to lose the opportunity when I saw it. The safest thing to do would be to wait for the SPAC to be completed but then, businesses don’t wait for you.

“Now we have to go and tell the SC that we’ve bought this. That’s why EWI is prepared to offer the SPAC a right of first refusal (ROFR) to acquire its 75% stake in EcoWorld-Ballymore,” Liew says. A SPAC must control more than 51% of the project or business it acquires.

Liew says since he became the chairman of Battersea Project Holding Co Ltd, he has learned to “love the market in London”.

“I think London is very vibrant and a deep market. London is a safe haven. Anybody who can afford it wants to have a property in London.

“If you are super rich, you buy those super expensive homes. But there are also products for the middle class. For people who have their kids studying in London and are looking for a small investment outside Malaysia, or their home country, this is a beautiful place to invest where you are protected. The currency is always strong and it is safe in this country. This is a world centre,” he notes.

Following the joint venture, EcoWorld-Ballymore will be acquiring all the three sites in London from the Ballymore Group for a total sum of £428.7mil (RM2.3bil).

The estimated GDV for the three sites totals £2.2bil (RM11.9bil), with the GDV for London City Island at £614mil (RM3.3bil), Arrowhead Quay at £591mil (RM3.2bil) and Embassy Gardens at £995mil (RM5.4bil), respectively.

Of the three London sites, Embassy Gardens has secured planning permission, while London City Island has an outlined planning consent.

In addition, the resolution to grant planning consent was passed on Nov 6 for Arrowhead Quay.

Accordingly, all three projects are expected to be ready for launch this year.

The target prices for the bulk of the apartments range between £500,000 and £900,000 per unit.

Price sensitive

The competitive and varied pricing of the projects will allow EcoWorld-Ballymore to tap into the broad-based demand from local UK buyers and also appeal to the more price-sensitive segments of the international investor market.

“We are delighted to be invited by Ballymore Group to jointly develop these three sites which will see about 2,500 units of private residential apartments developed to meet the strong demand for such homes in the growing east and south London regions,” Liew says.

In addition, all three sites are part of a wider regeneration programme that will benefit from significant investments in public infrastructure such as the Crossrail and northern line extension.

“These three projects, which are situated in geographically diversified growth areas offering differentiated pricing points, present an unrivalled opportunity for EcoWorld to introduce its brand name to the greater London market. With our combined and complementary strengths, we believe that the partnership with Ballymore Group can become a strong platform to grow our presence in the UK property market,” Liew says.

A recent report by Jones Lang LaSalle (JLL) says there are many good reasons to buy and invest in London, in particular when it comes to wealth preservation and safe haven benefits it offers.

JLL expects aggregate demand for residential properties in London to continue to hold firm but sees a shift towards lower value purchases, contributed mainly by the sheer volume of “ordinary” people who will benefit from an expanding labour force requirement and higher salaries in the City.

Despite all the upheavals in the world, Liew says the property market in London has become more popular. He points out that investors could actually invest in a property in London instead of renting given the high rental.

“We are targeting of at least 15% internal rate of return,” he says.

Meanwhile, Liew is unperturbed by the newly introduced Stamp Duty Land Tax (SLDT) by the UK government.

In the past SLDT, which is payable by the buyer, was levied at fixed rates ranging from 1% for homes starting at £125,000 to 7% (bought by individuals) or 15% (bought by corporations) for homes priced above £2mil. The SDLT amount payable was previously calculated by applying the fixed rate to the total value of the purchase consideration on a “slab” basis.

With effect from Dec 4, 2014, SLDT will be imposed on a step-up scale basis at rates ranging from 2% for homes priced at £125,000 to 12% for luxury properties on the portion of the consideration in excess of £1.5mil.

Thanks to the new way that SDLT will be calculated, for homes priced below £937,500 which covers the bulk of the properties to be sold by EcoWorld-Ballymore, buyers will stand to benefit from lower SLDT payable under the new regime.

“For this three projects, we are not concerned about the increase in stamp duty as 90% of our products actually benefit from this stamp duty policy because we are selling below the radar.

“We believe 60%-70% would to taken up by the local markets with foreign markets taking up 30% of sales,” Liew explains.

Liew also discloses that financing is already in place for the three projects.

“We have already secured financing from CIMB, Maybank, Hong Leong and UOB whether it is a land loan or construction loan. Everything is in place,” he adds.

Furthermore, EWI will not be subjected to the weakening ringgit as it secured its borrowings in pound.

“We are borrowing in pound. The construction and land loan are in pound. All the assets are in pound and our income is also in pound,” Liew notes.

Sharing the pie

Liew hopes to form more joint ventures (JVs) going forward following EWI’s first partnership with Ballymore group.

“From our experience, if you want to go big, it is better to do it via a partnership. Imagine us being a Malaysian company trying to employ 200 staff in London. It is crazy. By tapping into Ballymore’s expertise, we are able to have three projects with only five staff in London,” Liew says.

“We have limited capital. We are not an unlimited capital company. In the long term, we would like to invite Malaysian companies, government agencies like Employees Provident Fund (EPF), Kumpulan Wang Persaraan (KWAP) and pilgrims fund Lembaga Tabung Haji to come and participate with us.

“It is big enough for us to share. Just like Battersea Power Station, when we found the project, we thought it was too big for SP Setia. So we invited EPF and Sime Darby Bhd,” he says.

The Battersea Power Station redevelopment in London is currently undertaken by a Malaysian consortium of SP Setia Bhd, Sime Darby Bhd and the EPF. Liew is also the chairman of Battersea Project Holding Co Ltd.

“I am a guy who believes in partnership. The world is big enough to participate because capital is always limited. If you can participate, then we can increase in the velocity and do a lot more. That’s how we grew so fast at SP Setia. Hopefully, Eco World will grow in the same manner,” Liew says.

Market talk has also surfaced that Liew will be stepping down as the chairman of Battersea Project following his venture with Ballymore given the conflict of interest.

Liew, who has been the driver for the Battersea project, was supposed to remain as chairman until September 2015. The Battersea project is slated for completion in 2022.

He is currently a non-executive director Eco World Development Group Bhd in which Liew’s son, Tian Xiong holds a 35% stake. Eco World Development has expressed its interest in subscribing to 30% of the SPAC’s enlarged issued and paid up capital for RM562.5mil.

“I am working in a different manner. I am playing a different role as a mentor, teaching and also monitoring them, making sure they learn from my mistake. And also available for them tap into my expertise and knowledge,” he says.