ROBERT KUOK PAYS HEFTY PREMIUM FOR ISKANDAR LAND, HIGHEST PER SQ FT TRANSACTION RECORDED

The recent announcement that the Kuok Group’s JV with Khazanah to purchase 12.5 acres of prime land in Iskandar Malaysia for RM182 million with the purpose of building high rise residential and retail units with a view of the Straits of Johor, has attracted false allegations that the land was sold below market value.

 

This is highly ridiculous as the Kuok-Khazanah JV set a new price benchmark of nearly RM334 per sq ft (psf) for Nusajaya land.

 

In January, the same vendor UEM Land Holdings sold 43.6 acres in Puteri Harbour to Liberty Bridge Sdn Bhd for RM401 million or the equivalent of RM211 psf, translating to a 58% premium for the Kuok-Khazanah land transaction.

 

These allegations only serve to reiterate Malaysia’s sad story of attracting investors, only to frighten them away with our insecurities.

 

Investors come into Malaysia for its economic potential but because their investments are criticised so severely with wrong facts thrown in to confuse the issue, many investors run for the hills for cleaner, safer investment pastures in the region.

 

Critics have to differentiate between gross development value prices which is the price of property after land has been developed and cost of land which has not been developed.

 

If the land sold to the Kuok-Khazanah JV is Iskandar Malaysia’s all time high, how can it be below market value? Prices of land anywhere in the world are determined based on the last transaction made and in this case, it was RM211 psf.

 

By all logical reasoning, the land price in Johor is still below that of the Klang Valley and Penang. So allegations that the land should have been sold to the Kuok-Khazanah JV at RM700 psf does not hold water.

 

This has been verified by Johor Bahru Real Estate and Housing Developers’ Association (Rehda) chairman Koh Moo Hing who said property prices in Johor Bahru are still low when compared to Kuala Lumpur and Penang though Iskandar Malaysia is responsible for successfully stimulating the property sector in Johor Bahru.

 

As a comparison, the price of completed properties such as terrace houses in Horizon Hill range from RM400 to RM500 psf.

 

Meanwhile, recent land deals in Iskandar Malaysia revealed transaction prices of RM20 per square foot (psf) for a disposal of 614 acres of land by DRB-Hicom Bhd in April this year; RM12.20 psf when Sunway Bhd bought 779 acres of land for RM413 million in December last year and RM22 psf arising from the acquisition of 227 acres of land for RM220 million by Dijaya Corporation Bhd in August 2011.

 

So, don’t kill the goose that lays the golden egg. Investors may find other regions more attractive than Malaysia .

 

Malaysia could only stand to lose by spooking the investment community.

 

Firstly, Malaysia could lose out in its government coffers as MOF will benefit from taxes from the sales transaction; taxes on profit paid by the Kuok-Khazanah JV, construction companies; stamp duty from the purchase and employment generated by the project

 

Public listed company UEM Land and its minority shareholders will benefit from the sale of this land as well. Land is only as good as its commercial value.

 

Meanwhile, construction companies will enjoy jobs while the population will have more employment and business opportunities.

 

If at all, Robert Kuok in this deal had to pay 58% more than the last transaction which was completed just 3 months ago. That’s tough.

 

DAIM: SUPPORT FOR SELANGOR HAS WATERED DOWN

Tun Daim Zainuddin has predicted the handling of the water issue in Selangor by the PKR-led government which has dismayed developers, investors and the people, and diluted support for the state government.

Daim who famously predicted that BN would lose five states in the 2008 elections, said that BN will win comfortably in the upcoming GE-13 while at the same time noting the failures and idiosyncrasies of the various opposition party components.

More than 100 companies which provide about 25,000 jobs have been forced to withdraw from investing in Selangor because of the water supply crisis.

The federal government is now worried that there could be a repeat of the massive water shortage that affected some 500,000 people in the Klang Valley at the start of the year.

“Of course, they (Selangor state government) will blame everything on the Federal Government despite the fact the Langat 2 water project was planned before they came to power in the state,” he said.

Daim also played down the prospects of Datuk Seri Anwar Ibrahim being made prime minister.

“So far, there has not been even one significant idea from Anwar as the economic adviser to the Selangor government.”

Meanwhile, Minister of Agriculture and Agro-based Industries, Datuk Seri Noh Omar said that the Selangor state government’s refusal to proceed with the Langat 2 water treatment plant is an abuse of power.

As a result, the water shortage in Selangor will affect the state’s development. Currently, Selangor is faced with water shortage in any parts of the state and the water shortage has resulted in the shelving of 440 projects and the potential loss of tens of thousands of jobs.

STANDING IN THE WAY OF PROGRESS?

Why is it that the very people who say they are in favour of reform and change have a proven track record of blocking progress and development?

When the Penang Bridge was originally proposed in the 1970s, the opposition party strongly opposed and protested against the project.  They said it was unnecessary and a waste of public money.

With the benefit of hindsight, few people would agree with this view today as Penang Bridge 2 is set to be launched at the end of the year to accommodate escalating traffic.  Furthermore, those who opposed the construction of Penang Bridge are mulling a third bridge linking Seberang Perai with Penang island.

The same can be said of many development projects which have taken place since and are still yet to come.

When the Subang Airport was proposed, the opposition party said it wasn’t needed as there were no planes yet. Similarly they were quick to point out the faults of KLIA even though air traffic has gotten so high that LCCT had to be built, followed now by the construction of KLIA2.

This is not to say that the opposition party should be prohibited from raising valid points about developmental projects.

However, time and time again, they have proven to be short sighted and cynical in relation to many of the major developments that many Malaysian’s now see as essential parts of their lives, such as the North-South Highway, the iconic KLCC, the biometric system and the railway double track project.

It should come as no surprise then that the opposition are voicing out yet again against more Federal government-led projects such as RAPID which will create an petrochemical hub in Johor and Langat 2 treatment plant in Selangor which will increase treated water for the Klang Valley by 20 per cent.

Whether or not the opposition are making noise for the sake of doing so, the government has to act decisively because Malaysia can not afford to lag behind in terms of progress and development. 

The opposition should learn to give credit where and when it's due.  For the sake of development, please Pakatan Rakyat, give the rakyat a break.

SELANGOR STALEMATE WATERS DOWN INVESTMENTS

Even as we are buffeted by dry taps and a he said-she said finger pointing between Selangor state and Federal governments about the state’s water crunch, investments into the state have been hit.

The sad truth is Selangor can no longer cope with the ever increasing demand for water.

Last year, Syabas had to freeze hundreds of new applications for water supply from manufacturers, including world’s biggest rubber glove manufacturer, Top Glove and beverage manufacturer F&N.

Top Glove’s plan to build a corporate tower in Setia Alam was delayed, while F&N had to deal with significant losses as their new plant in Pulau Indah can’t operate for 5 days because there was no water.

Meanwhile, the Selangor Times reported that Selangor recorded the highest investments compared to other states with a total of RM7.68bil last year. The figure came from 186 approved projects which represents 16,076 job opportunities.

How does the Selangor state government plan to meet the demand for water for all these 186 projects when the existing facility can barely cope with current demand?

The Klang Valley needs additional water supply which means more sources of water and treatment capacity.

The restructuring exercise and the membrane technology proposed by the state government can't be considered as solutions as they don't address the issue of additional water sources and treatment facilities. The state government is desperately in need of a better alternative than membrane technology and slashing the rate of non-revenue water. It cannot continue to deflect the issue by proposing solutions that does not address the problem.

To simply rely on existing facilities to provide sufficient water supply to a growing population is just proof of idiocy.

Menteri Besar Tan Sri Khalid Ibrahim has vowed to take over all four water concessionaires and proceed with the restructuring of Selangor water industry within 14 days. This is not the first show of defiance from Tan Sri Khalid. He even went as far as willing to delay the Langat 2 project for 100 years.

But how does that address the problem of new water sources and more treatment capacity?

It seems the people of Selangor, Kuala Lumpur & Putrajaya will have to expect more water disruption in the future as the state government & federal government continue to play tug of war over the water issue.

MCKIP SET TO FIRE INTEREST IN A HOST OF LOCAL STOCKS

A host of local stocks are anticipated to pick up steam with the launch of the 685-hectare Malaysia-China Kuantan Industrial Park (MCKIP) on February 5, 2013 that will pave the way for a slew of new contracts to replenish their companies’ order book.

Investors are turning their attention on MCKIP which is targeting a list of industries that involves the manufacturing of equipment for plastics and metals, automotive components, stainless steel, carbon fiber, electrical & electronics, information & communications technology, and consumer products.

Dozens of companies on Bursa Malaysia Securities have the fundamentals and business synergies to join the MCKIP bandwagon, as the RM1.5 billion industrial park provides opportunity for collaboration and joint-ventures with large Chinese companies and can fuel the potential of some companies to be on par with the “big-boys.”

The launch of MCKIP comes at the perfect time with the FBM KLCI still on its 1,600 point support level and anticipated to have further upside riding on a possible pre-Chinese New Year rally and taking into account that the 13th General Election is believed to be called in late February. The benchmark index had earlier in the month hit an all time high of 1,692.65 points at close.

A private sector initiative with the federal government as facilitator, MCKIP will also stir the interest of strategic emerging industries such as environmental-friendly technologies, new-generation information technology, biotechnology, and alternative energy to set foot. The industrial park’s potential is enormous as it is projected to create 5,500 employment opportunities and RM7.5 billion in total investment value by 2020.

What is interesting is that MCKIP is not a standalone but within the KuantanPort Cityproject that covers 30,000 hectares of an integrated industrial and logistics hub.

Besides higher level of sustainable economic relations between Malaysiaand China, the industrial park serves as platform for growth development and support of the private sector to help promote investment inflows and entrepreneurial opportunities that will also boost the small and medium enterprises (SMEs).

MCKIP is the first industrial park in Malaysia to be jointly developed by Malaysia and China, and is a government-to-government initiative announced in reciprocation to the China-Malaysia Qinzhou Industrial Park that was launched in China by Chinese Premier Wen Jiabao and Malaysian Prime Minister Dato’ Sri Najib Tun Abdul Razak on April 1, 2012.

To spice-up MCKIP, it will be developed by a master developer comprising a joint venture company between a Malaysian Consortium and a Chinese Consortium under a 51:49 equity ratio. The Malaysian Consortium consists of SP Setia Bhd with 40% equity, Rimbunan Hijau Group (30%) and the Pahang State Government through Perbadanan Setiausaha Kerajaan and Pahang State Development Corporation (30%). The Chinese Consortium involves Guangxi Beibu Gulf International Port Group (47.5%), CCCC Real Estate Co Ltd and China Harbor Engineering Co (47.5%), and Qinzhou Investment Co (5%).
 

Prime Minister Najib will officiate the ground breaking of MCKIP and is likely to unveil a list of fiscal and non-fiscal incentives such as preferential tax treatments that will bring further excitement among investors and see stronger equity returns sooner than expected.

It is learned that several memoranda of understanding (MOUs) will be inked on February 5 by key Malaysian and Chinese companies that are eager to commit their investments in MCKIP “in a big way” riding on the positive impact the industrial park has to offer.

It was recently reported that Chinese companies were showing keen interest to invest in MCKIP despite the political issues related to the Lynas rare earth plant in Gebeng which is located near the industrial park.

MALAYSIAN PETROL STATION’S FACE MARGIN SQUEEZE

 

Anwar Ibrahim maintains that he will drop fuel prices within 24 hours of Pakatan Rakyat taking power of the Federal Government.
 

His populist proposal has worried petrol retailers because excessive government market intervention will create a difficult operating environment for them.
 

Shell Malaysia operates one of the country’s largest networks of retail stations with over 900 stations serving 500,000 customers daily.

 

The company is therefore vulnerable to any drastic reductions in fuel prices. Doing so will force them to make only razor-thin margins on their pump sales.

The margin is the difference between the cost of running a service station and what can be made from selling its fuel. Poor margins and spiralling operating costs directly and indirectly threaten businesses and jobs.
 

State-regulated pricing mechanisms are anathema to the free market. They will hurt the size of the retail station networks even in the face of rising local fuel demand.

Earnings of other fuel retailers such as Petronas, Esso, Petron, Caltex and BHP will also be affected by any immediate reduction in fuel prices.

Malaysia's economy should be moving away from market-distorting subsidies and not retaining and encouraging a culture of dependence and entitlement.

 

Sorry Anwar, this sounds like a step in the wrong direction.

 

BREAKING CHINA’S MONOPOLY ON RARE EARTH

China’s dominance of the rare earth industry is set to be broken and with it the capacity to manipulate the supply and pricing of this essential resource.

The source of China’s rare earth industry’s disquiet?  Lynas in Malaysia.

Lynas when fully operational, is geared to capture at least 20 per cent of global market share.

“Rare Earths” are a group of 17 elements that are currently used in a wide array of modern technologies, ranging from hard disk drives to lamp phosphors and hybrid car batteries. Presently, 90% of these minerals are mined in China.

But Lynas is not the only company aiming at breaking China’s stranglehold on this commodity which is utilised in nearly every modern appliance from mobile phones, computer screens to colour televisions.

Companies in the U.S. are also racing to the finish line. It’s a matter of who makes it first to the finish line, gets a leg up in commanding prices and secures contracts from companies seeking to buy rare earth, with competition hotting up to give China a run for its money.

In 2012, an old rare earth mine in California reopened and the next major rare earth mine is on track for going into full production in 2013 at Mount Weld, Western Australia (owned and operated by Lynas Corporation).

Because rare earth is a very precious commodity without which, modern appliances may come to a standstill, availability of rare earth has become a critical issue.

China's regulation on rare earths became a major political issue in July 2010 after the country slashed domestic output and export quotas by 40%. Recent data from Bloomberg shows that exports of rare-earth oxides from China have fallen 56 percent during the first five months of 2012.

According to Bloomberg, China, the world’s biggest rare earths supplier, cut the first-batch export quota for next year by 27% as overseas demand for the elements waned.

China’s Ministry of Commerce sets rare earth export limits twice a year. It pegged the first allotment for 2013 at 15,501 tonnes, down from 21,226 tonnes for 2012’s first setting.

Most affected by this limit in export is Japan. On Oct 1, 2010, Japan announced that it will move up developing new materials that can replace rare earth minerals in order to get rid of its dependence on Chinese exports. At the same time, Japan also sought to increase its supply by mining the precious minerals in more foreign countries, outside of China.

In H1 of 2012, Japan imported 3,007 tonnes of rare earth minerals from China, which accounted for 49.3% of its total volume, marking the first drop to below 50%.

In 2011, Japan ’s imports of the metals fell to 15,400 tonnes, down 34% compared with the figure of the previous year. Before 2009, over 90% of Japan's rare earth supply came from China . According to Nikkei , Japan currently owns 16,500 tonnes of rare earth metal resources in Australia , Kazakhstan , India and Vietnam . These resources will be available to Japan in 2013.

What does it mean for Malaysia? Its timely entry into the Rare Earth Industry means that the country, which aims to be developed by 2020, stands to benefit immensely from better paid high skilled jobs and an equal footing for local businesses to make their first step into the global manufacturing arena.

The World Bank warned Malaysia back in 2009 that it is too dependent on revenues from oil and gas and should instead broaden its revenue base.

Professor Badrulhisham Abdul Aziz, a Malaysian academic at University Malaysia Pahang, said: “With the Lynas refinery, Malaysia has the potential to brand itself as a rare earth hub, once other downstream industries place their plants here.”

The demand for rare earths is likely to grow dramatically in coming years and Malaysia can play an important role in leading the way in showcasing how a modern processing facility can be effectively managed to minimize risks.

The rare earth industry within Malaysia has been the focus of intense political scrutiny, social activism and media interest during the past two years, in light of the Malaysian Government's approval of the construction and operation of a US$1 billion rare earths processing and refinery plant at Kuantan in Pahang State. This facility is owned by Australian corporation Lynas and commonly referred to as the “Lynas Advanced Materials Plant” (LAMP).

Malaysians should decide if they want to vault into the new economic era where it has a lead now in rare earth or remain frightened into economic submission via unsubstantiated claims of rare earth radiation, which has been disproved by the United Nations’ International Atomic Energy Agency.

More recently, the United Nations Scientific Committee on the Effects of Atomic Radiation concluded that radiation doses of less than 0.1 Sv or 100 mSv, have only a negligible effect on health.

Lynas has declared that radiation levels from its plants are at 0.002 mSv , way below smoking which generates radiation of 150mSv.