Frankly Speaking: S P Setia bulks up for Battersea

This article first appeared in The Edge Malaysia Weekly, on May 10, 2021 - May 16, 2021.
Frankly Speaking: S P Setia bulks up for Battersea
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Within a week, S P Setia Bhd has proposed a RM3 billion Islamic debt issue and is selling land in Johor for RM518.2 million.

Part of the proceeds from the bond issuance will go towards its capital commitment in the Battersea Power Plant project in the UK that is due in the first half of next year. The money raised will also be used to reduce its borrowings and for other property projects in the domestic market.

Of the amount raised, the portion earmarked for the Battersea project, in which S P Setia has a 40% stake, is £128 million (RM720 million). The other partners are Sime Darby Property Bhd and the Employees Provident Fund (EPF).

The project in London, whose development is at phase 2 and 3, has been facing headwinds since 2016. It is unusual for a property project to encounter delays in London as the demand for housing far exceeds supply.

Nevertheless, it resulted in S P Setia recognising an impairment of £62.4 million last year.

The London property market has been weak mainly because the UK decided to leave the European Union following a referendum in 2016. Brexit was finally resolved in 2019/20 but subsequently, the global property market was hit by the Covid-19 pandemic.

However, the property market in the UK, especially London, has been picking up of late. The revival is party attributed to more people from Hong Kong seeking a home in London.

S P Setia is among the biggest property developers on Bursa Malaysia with some 23 township and niche developments ongoing. It has a land bank of 8,500 acres that comes with good connectivity and infrastructure. Its ongoing domestic projects had a gross development value of RM9.4 billion as at end-2020 and they have a take-up rate of 68%.

S P Setia has a gearing of 0.78 times, which is good for a property developer. But the property market has not worked in its favour, especially since 2018. The property market in London and Malaysia has been weak.

But between the two, the London property market seems to be picking up faster, which is probably why S P Setia is prepared to put in more money there. In Malaysia, the oversupply is still sizeable, especially outside Kuala Lumpur.

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