Temasek's entry stirs interest in Chase Perdana

Bizweek
Saturday March 31, 2007

Temasek's entry stirs interest in Chase Perdana

By HARI RAJ

TEMASEK Holdings Ltd has long espoused the notion that its investments are purely of a commercial nature. The last time it reiterated this stance, Singapore's national investment arm had received some flak for its purchase of Thailand-based Shin Corp, which reportedly triggered a series of events that led to the ousting of former Prime Minister Thaksin Sinawatra.

Though similar repercussions are probably not in store, more than a few eyebrows were raised when filings to Bursa Malaysia earlier this week revealed that Temasek, Singapore's national investment arm, had emerged as a substantial shareholder of Chase Perdana Bhd with an interest of 5.8% or 7.17 million shares.

Temasek was deemed to have an interest in Chase Perdana because HDM Capital Sdn Bhd owns 5.18 million ordinary shares in the company. HDM is wholly-owned by Hwang-DBS (Malaysia) Bhd, an associate company of DBS Bank Ltd, which is in turn an associate company of Temasek.

The other 1.99 million shares are held by Alliance Group Nominees (Tempatan) Sdn Bhd, following the conversion of Chase Perdana's redeemable convertible preference shares. The former is an indirect subsidiary of Malaysian Plantations Bhd, which is an associate company of Vertical Theme Sdn Bhd, in which Temasek indirectly owns 49%.

From a commercial perspective, Chase Perdana is hardly the sort of company to set investors' pulses racing. Founded in 1970, the construction player grew sufficiently to make its debut on the local bourse in 1991 as Chew Piau Bhd, the flagship of low-profile entrepreneur Tan Chew Piau.

In 1994, following its sale to a Sabah-based business group and subsequent adoption of its current moniker, Chase Perdana diversified into plantation, property development and investment, manufacturing, financial services and civil engineering.

However, the coming decade was not to be kind to the company. From a trading position of around the RM10 mark in 2000, it dropped to under RM4 in 2001. After some financial irregularities, Chase Perdana was classified as a PN4 company in February 2002.

It was then suspended in September 2002 pending debt restructuring, and has been a penny stock since it resumed trading in July 2003.

According to its 2005 annual report, Chase Perdana owns properties worth RM170mil, including Wisma Chase Perdana in Damansara Heights, Kuala Lumpur and the Kurnia Perdana commercial and residential project in Kota Kinabalu, Sabah.

Interestingly, Temasek's entrance into Chase Perdana coincides with a wave of renewed interest in the sector. Most property developers, along with construction companies, are expecting higher demand and profitability following the Government's abolishment of the real property gains tax (RPGT), along with the removal of much of the red tape restricting foreigners' property investments in Malaysia.

The RPGT, which was a flat tax rate of 30% on profits derived from the disposal of properties within five years from their purchase date, will be removed effective April 1, 2007.

Foreign acquisitions of residential properties priced above RM250,000 per unit no longer require approval from the Foreign Investment Committee, while there are no conditions in terms of usage or limit on the number of properties purchased, allowing these properties to be rented, leased or traded.

In addition, there will no longer be a limit on the number of residential property loans obtained by foreigners. Under the previous policy, foreigners were allowed to obtain a maximum of three property loans to finance the purchase of properties in Malaysia.

The sector's abundant growth potential is underpinned by a number of factors, including increased consumer spending sentiment as the ringgit strengthens against the greenback, along with the provisions included in the 9th Malaysia Plan.

It is also recognised that Malaysian real estate is undervalued compared with its immediate neighbours, leading analysts and developers alike to predict an influx of demand from abroad following the latest liberalisation of property rules.

Temasek would hardly be alone in this respect, but a multitude of question marks remain concerning its entry into Chase Perdana, not least of which is the fact that it is already exposed to the global property market via CapitaLand Ltd, in which it has a 46% stake.

CapitaLand, which generates some 80% of its earnings outside the island nation, has already tied up with a number of Malaysian developers. These include YNH Property Bhd, with which it will jointly develop an office tower and retail centre on a piece of freehold land in Kuala Lumpur's Golden Triangle.

Likewise, CapitaLand has joined forces with Malaysian Resources Corp Bhd and the Quill Group to build RM650mil of residential and service apartments close to KL Sentral, the confluence of the city's rail lines. The project, in which CapitaLand has a 39% stake, is expected to commence in 2008.

Also upcoming is the just-approved RM1.5bil Four Seasons Hotel and apartment complex in partnership with Singapore-based tycoon Ong Beng Seng, to be built next to the Petronas Twin Towers.

In addition, CapitaLand is getting in on the ground floor with real estate investment trusts in Malaysia. Besides a 30% stake in Quill Capita Trust, it is also collaborating with the Maybank group for a US$270mil Singapore-based closed-end private equity fund that will invest in the local property sector.

The Malaysia Commercial Development Fund is the largest real estate fund in Malaysia, with an expected gross development value of over US$1bil. CapitaLand will be the largest subscriber, with 28%, followed by the Maybank group's 11% interest.

That's quite the roll call of affiliations, but it brings us no closer to interpreting the role that Chase Perdana will play in Temasek's portfolio. Still, with the recent upheavals in the local property sector leaving most observers uncertain as to their eventual after-effects, a clearer picture may be some time coming.