UEM Land ... Feb 2009

UEM Land

To recap, the listing of UEM Land was the result of a corporate exercise by UEM Group to streamline its operations. UEM Land took over the listing status of UEM World Bhd last November in order to unlock the value of the group’s landbank.
UEM Land has about 4,500 acres in Iskandar Malaysia , with its flagship development being Nusajaya, identified as a catalytic project in the region.

What’s Up?

US-based fund Discovery Capital Management LLC has been actively selling down on the property arm of the UEM Group, UEM Land Holdings Bhd, whose prospects in the year ahead (2009 & Beyond) seem uncertain.

Discovery Capital has been cutting its shareholding in UEM Land over early Feb 2009 after acquiring a 5.7% stake comprising 138.5 million on the day of the latter’s listing on Nov 17, 2008. Discovery Capital has since reduced its shareholding in UEM Land to 5.33% or 129.43 million shares.

Its Prospects …

The three-month-old listed company has not been around long enough for its value to be ascertained, particularly with regard to its historical track record.

Furthermore, its growth prospects were dependent on the success of its flagship development at Nusajaya in Iskandar Malaysia , which has been fairly quiet of late. There just aren’t any fundamentals.

The lack of fundamentals meant that it was hard to pin down the company as a value stock, and whatever growth potential for UEM Land was tied to its Iskandar development. Nonetheless, the lack of fundamentals was a problem that could be remedied in time.

However, the Iskandar development is still very much at its infancy, and its long gestation period meant that it would be a while before UEM Land begins to see returns from that development.

The current (Feb 2009) economic crisis could also serve to hamper development in that area as Iskandar is very much dependent on foreign investment, particularly from the Middle East , which is beginning to feel the pinch of the global financial drought.

UEM Land, however, appears to be continuing strongly with its venture in Iskandar, with management saying it would be completing a fund-raising exercise worth RM1.2 billion to invest in Iskandar Malaysia by next month (March 2009).

The loan would raise its debt-to-equity ratio to 60%, which is on par with other property companies, but concerned were about the cash holdings and the cash flow of the company.

With much sunk into Iskandar Malaysia , which is years away from showing any notable returns, it is difficult to see where the short-term money is going to come from.

To be fair, UEM Land has also tried to diversify its business by investing elsewhere, notably in Cyberjaya where it has agreed to purchase 98 acres (39.7ha) of land for RM102.49 million.

Also, UEM Land has the deep pockets of major shareholder and government investment arm, Khazanah Nasional Bhd, to fall back on if it finds itself strapped for cash.

Khazanah has already stepped in once to bail out the company when it was struggling with its high debts, and would likely do so again given Iskandar’s status as a key national project.