Permodalan Nasional Bhd (PNB) is looking to merge three of its biggest property companies in a move to extract value from its portfolio of companies.
Sources say the fund is studying a move to amalgamate S P Setia Bhd, Island & Peninsular Sdn Bhd and the property businesses of Sime Darby Bhd to bring about efficiencies in its broader shareholding, and in the process create the largest property company in Malaysia.
With PNB set to assume managerial control of S P Setia, the thinking behind it, says a source, is to leverage on the strengths of each company.
In S P Setia, which PNB controls 65%, it has the country’s most profitable property company. But S P Setia is limited by the amount of land that it owns and generally acquires land and then prepares the site for its next project.
It has holding power today thanks to its strong balance sheet but it needs sell land as quickly as it purchases it to generate cashflow to sustain its operations. S P Setia has about 4,782 acres and 40 projects in five countries.
Sime Darby Property, which was merged with the property arm of Kumpulan Guthrie Bhd, by itself is the largest property developer in the country. According to its website, it has 19,000 arces and has identified another 18,800 acres for future development.
Sime Darby says the core businesses of its property division are property development, property investment and hospitality and leisure. Apart from Malaysia, it has successful projects in four countries, namely, Singapore, Vietnam, Australia and United Kingdom.
In Malaysia, Sime Darby has arguably the lowest cost of land because of the large plantations that it owns.
“That is a big benefit to Sime Darby but the property business is small relative to the overall business of Sime Darby,” says a source.
Island & Peninsular is a different entity than when it was listed and its form today is a creation of a merger between itself, Pelangi Sdn Bhd and Petaling Garden Sdn Bhd.
According to its website, Island & Peninsular has pending developments on 5,165 acres.
The property companies within the PNB stable are steeped in history. They as a collective have been a builder of some of the country’s largest townships. Places such as Subang Jaya, Bukit Jelutong, Ara Damansara, Putra Heights, Setia Alam and Bandar Kinrara in Puchong were created by those companies.
The thinking behind the merger is that by combining the assets and abilities of the different companies within PNB, the singular large company will be able to surpass some of the larger property companies on Bursa Malaysia which are UEM Sunrise Bhd and IOI Properties Group Bhd.
Plans to create a property giant has always been in the thinking within the corridors of PNB.
More than a decade ago, the idea was floated that property companies under the PNB stable should merge to create a giant in the industry.
Those plans never took off with much conviction until the creation of Synergy Drive which saw the merger of plantation and property companies that would later become the new Sime Darby.
But in recent years, following the takeover of S P Setia by PNB, property has increasingly been the focus of the fund.
Apart from owning stakes in property companies, PNB has commenced with the building of the 118 storey Warisan Merdeka Tower.
Award of the first contract for the tower has been doled out to Pintaras Jaya Bhd for the foundation works for the massive tower.