EPF, PNB say Battersea Phase 2 asset deal commercially driven

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KUALA LUMPUR (Jan 19): Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF) have refuted claims that their potential asset purchase in the Battersea Power Station (BPS) redevelopment in London constitutes a bail-out.

In a joint statement issued this evening, the funds said the decision to explore the potential acquisition of assets in Phase 2 of the project was purely an investment consideration.

"The purchase price, which is still subject to further due diligence, has been structured based on a completed and tenanted basis, to provide attractive long term yield for the investors," said PNB and EPF.

On Thursday, Sime Darby Property Bhd — a 40% stakeholder in the BPS project — announced to Bursa Malaysia that Battersea Phase 2 Holding Co Ltd had inked a heads of terms with PNB and EPF for the potential sale of commercial assets worth £1.61 billion (RM8.8 billion) in Phase 2.

Battersea Phase 2 Holding Co is the unit of Battersea Project Holding Co Ltd, which is the vehicle undertaking the overall BPS redevelopment. Apart from Sime Darby Property, developer S P Setia Group Bhd also has a 40% stake in the vehicle while the remaining 20% is owned by EPF.

The consortium of Sime Darby, S P Setia and EPF had bought the iconic brick structure in July 2012 for £400 million and officially launched the multi-phase redevelopment one year later, with an estimated gross development value of £8 billion and lasting up to 15 years.

Prior to the heads of terms announced on Thursday, PNB was already indirectly vested in the project as it is the majority shareholder of both Sime Darby and S P Setia.

The non-binding heads of terms provides an exclusivity period up to April 30 for the parties to conclude the proposed deal, subject to further due diligence.

If the potential acquisition of assets in Phase 2 by both PNB and EPF proceeds, it would mark a restructuring that means PNB and EPF takes a direct exposure in those assets.

Today, London-based website Sarawak Report alleged that the proposed acquisition was due to pressure from the Malaysian government amid reports that the project's costs had ballooned, casting doubt on its viability.

It pointed to a London Evening Standard report on the same day claiming that the proposed sale came after the project cost had doubled from an initial forecast of about £750 million.

"The projected profit return on the scheme had already been cut from 20% to 8.2%," the London Evening Standard claimed.

In response, an unnamed BPS project spokesperson said that while "there have been cost increases across the industry and at Battersea Power Station, this transaction is not in reaction to costs," Reuters reported.

While the joint statement by PNB and EPF did not mention the Sarawak Report article explicitly, it noted that the decision to explore the potential acquisition was taken independently and without government intervention.

"The EPF and PNB view this as a strategic opportunity to secure ownership of a unique and iconic real estate asset in a global city, which will be able to deliver a sustainable income stream into the future to meet their respective income needs," the funds said.