E&O ... Jun 09

EASTERN & ORIENTAL (E&O) Group is positioning itself to capitalise on opportunities in the next economic upturn including holding back launches to time for the upturn as well as raising capital that could be used to make opportunistic acquisitions.

ISSUE OF RM200M ICSLS
The Group's RM200m proposed 1-for-2 Irredeemable Convertible Secured Loan Stocks (ICSLS) 2009/2019 in late May 2009 is part of a two-pronged strategy to raise a total of RM500m.

ED ERIC CHAN told STARBIZWEEK reported on Jun 6, 2009 that the RM500m would strengthen the Company's balance sheet in the next two to three years by increasing cashflow and lowering gearing. The money will be used to fund developments, opportunistic acquisitions such as strategic acquisitions of landbank, and general working capital and repayment of financial obligations, etc.

IMPACT OF 2009 DOWNTURN SUDDEN
The suddenness of the economic downturn in 2008 and 2009 had impacted E&O's business and strategies CHAN said. Under current weaker conditions, the premium niche property developer is focused on managing the balance sheet rather than being only profit and loss-driven.

RM300m RAISINGS FROM DISPOSALS
In addition to the RM200m from ICSLS Issue expected to be completed by Aug 2009, RM300m will be raised from the disposal of non-strategic landbanks and cash generated from new launches. To date, it has also raised just under RM100m from the disposal of what it considers to be non-strategic landbanks including a property in the Semantan area of Kuala Lumpur from the unwinding of a joint venture with SELANGOR PROPERTIES.

As part of its value preservation strategy, E&O has been holding off launches and will only put these developments with an estimated sales value of RM4 bil into the market when the economy and demand for high-end property recovers.

FULL FYE MAR 2009 TURNS INTO NET LOSS
The Group has announced an Unaudited RM37.7m Net Loss for the FYE Mar 31, 2009 (FY09) compared with a Net Profit of RM128.9m for FY08.

The RM4 bil appears to be readily realisable when the market recovers and the upturn may be sooner than expected. The Company expects to take two to three years to reduce the high gearing it has built up during the downturn.

LAUNCH OF TWO PROJECTS IN 2009
The Company is launching two projects in 2009. These projects are the 440-unit St Mary service apartments in Kuala Lumpur near the Weld to be launched in Jul 2009 and 1,000 units of Seri Tanjung Pinang condos in Sep 2009.

The Company expects these projects to bring RM600m into the Company?s coffers.

REDUCTION IN GEARING
The estimated RM200m from the ICSLS Issue, by E&O's calculations, will bring down the Company's gearing from 0.8 times to 0.46 times, while the RM300m from landbank disposal and new launches will bring gearing down to a negligible 0.16 times.

The Company expects the takeup to be slow due to high incoming supply of high-end condos especially around KLCC over the next two to three years. St Mary's initial launch will likely be priced at an attractive RM800 per sq ft versus the KLCC secondary market price of RM800 to RM950 per sq ft, along with a 10/90 financing scheme.

UNBILLED SALES OF RM150M
The Group currently has Unbilled Sales of RM150m. HWANG-DBS says that the Company's high gearing will abate and calculates that gearing will improve to 0.53 times from 0.83 times at present.

The funds raised will also ease pressure to sell assets at distressed prices. E&O still hopes to raise RM300m from the disposal of non-strategic landbank it says.