Don't be overly jittery', HLIB tells investors onon IOI Properties' Shenton House redevelopment

KUALA LUMPUR: Investors should not be overly jittery about IOI Properties Group Bhd's gearing level following its move to participate in the joint redevelopment of Shenton House in Singapore, said Hong Leong Investment Bank Bhd (HLIB). 

HLIB also said IOI Properties can mitigate conflict and competion in the mixed-used building market while extracting maximum value from such developments through careful planning on the launch timing, product pricing and marketing strategy of these products.

"While there are persistent concerns among investors on the elevated net gearing level, we reiterate our view that investors should not be overly jittery about this," the firm said today.

IOI Properties yesterday said it had received a proposal from its chief executive office and substantial shareholder Lee Yeow Seng to buy a stake in Shenton 101 which is wholly-owned by him. 

HLIB noted that assuming IOI Properties acquires a 100 per cent stake in Shenton 101, the acquisition cost would amount to S$1.01 billion (RM3.53 billion), while net gearing is estimated to increase to 88.8 per cent from 73.3 per cent as at March 31 this year. 

HLIB said the building is more than 50 years old and hence, this makes it eligible for redevelopment incentives under the Urban Redevelopment Authority's (URA) Central Business District (CBD) Incentive Scheme, which targets older buildings for transformation into mixed-use developments.

"Under this scheme, Shenton House is eligible for a 25 per cent bonus gross floor area, which should increase its gross plot ratio from 11.2 to 14. 

"The plan is to redevelop Shenton House into a mixed development potentially comprising mixed-use commercial (likely office) with residential or hotel with a renewed lease of 99 years," the firm added.

The redevelopment works are scheduled to commence by the end of 2025 and post-redevelopment,, the property is intended to be held as an investment property.

HLIB said given that it is a related-party transaction, Lee and his brother Datuk Lee Yeow Chor, who both are major shareholders of IOI Properties, will abstain from board deliberations and voting. 

The proposal also likely requires shareholders' approval given that it is a related party transaction and that its percentage ratio is above 5 per cent

HLIB maintained its "Buy" call on IOI Properties with unchanged target price of RM3.30.