When Ivory Properties Group Bhd got the green light from the Penang Development Corp (PDC) to develop 102 acres of land in Bayan Mutiara, Penang, in July, it was expected that it would undertake the venture with a partner.
Not surprisingly, after four months of courtship, Ivory announced last Friday that it was teaming up with Dijaya Corp Bhd to develop the reclaimed land into Penang World City, a project with a gross development value (GDV) of RM10 billion.
"We have approached Dijaya because of our past strong working relationship. This partnership will be a boost not only for the group but also for Penang," group operations director Murly Manokharan tells The Edge.
The joint-venture (JV) company, Tropicana Ivory Sdn Bhd (TISB) will see Ivory taking a 51% stake in it and Dijaya the remaining 49%.
TISB will develop the mixed-use development over the next five-eight years.
"Under the JV agreement, both Ivory and Dijaya will be able to change the shareholding structure and become the turnkey developer at any time. However Ivory will be the turnkey developer at the start," said Murly.
Ivory received the letter of award to purchase and develop the land after a round of tender exercises by the PDC. Under the agreement, Ivory and its partner will pay the PDC RM1.07 billion or RM240 psf over the next five to eight years as the land is being developed.
Upon signing the purchase and development agreement (PDA) with the PDC, TISB will pay RM109 million as deposit for the first 10.5-acre parcel. It will then make another six payments for the remaining six parcels over the next five to eight years.
To fund Ivory's portion of the RM110 million payment, the group has proposed a one-for-one rights issue with one-for-one free warrants. Ivory is hoping to raise RM93 million from the exercise , some RM50 million which will be utilised for the PDA. The exercise also has a bonus issue.
Murly says TISB plans to launch the first condominium on the reclaimed land in the middle of next year."The revenue derived from this launch will then be used to fund the purchase of the next parcel. The five-year payment terms are good as we are ensured of good cash flow."
Dijaya Corp's group CEO Tan Sri Danny Tan says he is optimistic about the project because of its strategic location and strong potential earnings contribution to the group.
"The project will keep us busy for at least eight years," he tells The Edge.
The JV marks the close relationship between the two groups and will benefit both parties as the demand for property is still healthy in Penang.
"Properties especially those on the island, continue to draw investors from as far as Singapore and Indonesia. We are happy to co-develop this strategically located project," says Tan, adding that condos on the reclaimed land can be sold for about RM550 psf.
The project is located within Bayan Mutiara, which is next to the Tun Dr Lim Chong Eu Expressway. There are plans to develop a mix of residences, office suites, office towers, retail lots, a shopping may and a hotel on the land.
Of the 102 acres, about 67.5 acres have already been reclaimed from the sea.
While both Ivory and Dijaya will manage the construction work, Murly says TISB will most likely outsource ther reclamation of the remaining 35 acres.
Penang World City will be the biggest project undertaken by Ivory since its inception in 1999. The project is expected to generate sales of at least RM1 billion per annum for TISB if completed within eight years. Ivory now has projects with a GDV of RM1.3 billion and total unbilled sales of RM350 million.
As for Dijaya, the project marks its latest venture after a series of land acquisitions this year and its biggest development in Penang. YTD, the group has snapped up 560 acres in prime locations in the Klang Valley, Johor and Penang.
"Dijaya bought the parcels due to their strategic location, which is the most important aspect in this industry," says Tan.
Excluding the Penang project, Dijaya has 700 acres with a potential GDV of RM18 billion and current unbilled sales of RM300 million.
Tan says Dijaya plans to launch RM1 billion worth of properties next year, including on its recently acquired land in Subang and in Kajang and Cheras.
These project launches are part of the group's plan to grow its market capitalisation to between RM2 billion and RM3 billion in the next five years saysTan. " We will also focus on building the Tropicana brand name with new launches."
In 1HFY2011 ended June 30, Dijaya posted a net profit of RM38.9 million on revenue of RM128.3 million. Net profit was RM3.1 million in 1HFY2011. Ivory posted a net profit of RM14.7 million on the back of RM80.25 million in revenue in the same period.
Not withstanding fears of a global recession next year, Ivory and Dijaya are confident that Penang World City will boost the property market in Penang and contribute positively to the revenue of both groups.
Tan says the project also spells the end of Dijaya's active landbanking this year. "We have acquired enough land to keep us busy. We will now focus on developing it."