SPSetia ... Jan11

The property developer has confirmed securing 40 acres of prime land along Jalan Bangsar.

It also announced a fund-raising exercise via a proposed placement of 15% of new shares to be done via book-building that could easily raise RM1.14 billion. The fund raising comes in tandem with a one-for-two bonus issue.

It had received an approval-in-principle from the Prime Minister’s Department to talk over terms for the proposed development of a new integrated health and research complex for the Ministry of Health (MOH) in Setia Alam. In return, S P Setia’s 50% subsidiary Sentosa Jitra Sdn Bhd gets a piece of prime land along Jalan Bangsar where the present facilities belonging to the health ministry are located.

It is learned that the other 50% of Sentosa Jitra could be owned by parties related to tycoon Tan Sri Syed Mokhtar Al-Bukhary.

The company said that it had received a letter on Sept 24, 2010 by Unit Kerjasama Awam Swasta (UKAS) of the approval-in-principle granted by the Federal government for Sentosa Jitra to enter into negotiations with UKAS and the MOH over terms for the proposed development of a new integrated health and research complex on a 55.33-acre land in Setia Alam by way of land swap for the government land located along Jalan Bangsar.

S P Setia plans to develop the tract of Bangsar land (background) it acquired from the government into a mixed residential and commercial project.

The proceeds from S P Setia’s fund-raising exercise are partly for the MOH development in Setia Alam that is expected to cost RM600 million to RM700 million. The funds are also to finance its existing projects, general working capital requirements, future expansion plans as well as to defray related expenses.

The funds to be raised are timely especially for the MOH deal and will help expedite the development of Setia City to complement the presence of the 1NIH Complex.

S P Setia’s other development projects are also expected to benefit from the corporate exercise, including its KL Eco City (KLEC) project opposite Mid Valley, and the Fulton Lane project in Melbourne, Australia. The KLEC is a joint venture with City Hall.

S P Setia has plans to redevelop the land in Bangsar into an integrated mixed residential and commercial project where the MOH will have a 20% share of the net profits from the redevelopment under the proposal.

It is understood that the 40 acres could be worth RM523 million to RM871 million, based on the price of RM300 to RM500 psf for residential bungalow land in Bangsar.

If the land has a plot ratio of four times or higher with commercial title, it could be worth several times more. Assuming a plot ratio of four to five times and an average selling price of RM1,200 psf, the gross development value of the Bangsar land would amount to RM8 billion to RM10 billion.

Also assumes that S P Setia has a 50% to 60% stake in the project, which is similar to its effective 60% stake in KLEC, the surplus value from the land at a net cost of RM700 million for the 1NIH Complex alone would be around RM550 million or 48 sen per share, boosting the revised net asset value (RNAV) to RM6.21. There was a possibility of raising it to around RM8 based on the surplus value of the Bangsar land.

There could be further upside to the RNAV as the shift of several thousands of ministry staff to Bandar Setia Alam would make S P Setia’s flagship township and the RM5 billion 158-acre Setia City commercial centre even more attractive.

Potential re-rating catalysts include positive news on the Bangsar land, continued robust sales, newsflow on other landbank and strong earnings growth.