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KUALA LUMPUR: LBS Bina Group Bhd’s massive property development in the southern Chinese city of Zhuhai could be a trump card that may substantially boost the company’s future earnings and valuations should it take off well this time round.
The mixed property project sits on a tract of 197 acres (RM78.8ha) and is estimated to have a gross development value (GDV) of around RM5 billion stretching over six to eight years.
For this large tract of development land, which enables LBS Bina to enter China’s property market, plus an adjoining award winning 36-hole golf course, LBS has so far spent only US$1 (RM3.09) to acquire the shareholding in these two joint ventures.
Indeed, LBS Bina may soon pocket some handsome gains by divesting just a fraction of its shareholding in the two joint ventures that own the property project and the golf course, respectively.
LBS Bina has inked a letter of intent to sell a 10% equity stake in two joint ventures to its Chinese partner, Zhuhai Special Economic Zone Long Yi Enterprises Company (Long Yi), for a total of RMB200 million (RM93 million) cash.
The two joint ventures are Zhuhai International Circuit Consolidated Development Limited (ZIC Development) and Zhuhai International Circuit Golf & Country Club Limited (ZIC Golf), both of which LBS Bina, via its subsidiaries, currently owns 60% shareholding and Long Yi holds the remaining 40%.
Following the 10% divestment, LBS Bina and Long Yi will be 50-50 partners in the two joint ventures.
LBS Bina inherited the Chinese project via a backdoor listing exercise of Instangreen Corp Bhd back in 2002. Instangreen, which was primarily involved in golf courses, sank into financial problems during the 1997-98 Asian financial crisis.
Prior to the financial crisis, Instangreen had earlier entered into three joint-venture arrangements with a Chinese state corporation, which contributed 895 acres of land in exchange for an equity stake in the project.
Instangreen was to make a capital injection of US$71 million. It had invested US$45.6 million prior to the financial crisis, before becoming insolvent.
These options came as part of the restructuring of Instangreen. As part of the rescue plan, the China projects were parked with friendly parties and the three options put in place.
In April 2004, in view of its better financial footing, LBS Bina exercised an option to acquire 266.9 acres of development land in Zhuhai for a nominal sum of US$1.
This forms part of the 895-acre Lakewood Golf Course development, which also has a racing circuit and a 36-hole golf course.
LBS Bina had options to acquire each or all three of these components for a nominal sum of US$1 each.
Back then, the potential of the Zhuhai project spurred much excitement among analysts and fund managers, and LBS Bina’s share price, amidst high expectations of lucrative profits from China.
However, apart from the exercise of the option, there has not been much progress on project implementation since then. Investors, including fund managers, who bought into the “China growth story” have since been disappointed with the long delay.
The recent corporate developments may offer some promising signs. However, the execution of the China project is probably the key to restoring investors’ support for the stock.
This article appeared in The Edge Financial Daily, November 8, 2010.
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