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Malaysian developer IOI Properties has rescinded its agreement with Hongkong Land to jointly develop and manage an office and retail project in Singapore’s Central Business District (CBD), reported the Business Times.
The company’s subsidiary Wealthy Link acquired the 1.1ha white site in Central Boulevard in November 2016 for $2.57 billion, or $1,689 psf per plot ratio (psf ppr).
Last June, it inked a conditional contract, wherein Hongkong Land would get a 33 percent stake in the mixed-use development comprising a 30,000 sq ft retail podium and two office towers with a combined leasable space of about 1.26 million sq ft.
But on Tuesday (13 March), IOI Properties said in a Bursa Malaysia filing that it had axed the joint venture due to “non-fulfilment of certain conditions” by Hongkong Land.
Under the deal agreement signed between the two firms last June, conditions that must be met by 12 March 2018 consist of obtaining of Additional Conveyance Duties Remission approval, getting approval from the Urban Redevelopment Authority (URA), obtaining of lenders’ approval, obtaining of Additional Buyer’s Stamp Duty Remission approval and securing the permission of Bank Negara Malaysia (BNM).
However, the Malaysian developer did not specify which terms were not fulfilled. Notably, the party got URA approval last February. The tender for the piling works has been handed out, while construction has already started.
On Tuesday, IOI Properties announced that it is confident of completing the development without the help of Hongkong Land. However, Hong Leong Investment Bank analyst Lee Meng Horng believes this would increase its leverage level.
“We are negative on the news as we opine the joint venture with Hongkong Land would complement IOI Properties well in the development given their wealth of experiences managing prime office assets and also ease the balance sheet burden of IOI Properties in undertaking the entire project.
“Without the contribution from HongKong Land, we expect IOI Properties’ net gearing to be stretched and will inch up closer to 0.8 times from the current 0.6 level with the estimated development cost in the region of $700 to $800 million,” he noted.
Furthermore, shares of the Malaysian developer slid 2.2 percent yesterday to a two-year low of RM1.77. Nevertheless, The Edge reported on Monday that IOI Properties is understood to have secured long-term financing from five banks amounting to $1.6 billion.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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