The Star, 22 March 2014 - Landing the deal

The Star, 22 March 2014

IT IS often interesting how the seller and the buyer have contrasting views on an asset that’s at the heart of a transaction. One example is Tropicana Corp Bhd’s proposed disposal of 309 acres in Kuala Langat, Selangor, to fellow property developer Eco World Development Group Bhd for RM470.67mil cash.

Typically, the investment community is lukewarm to the idea of a developer selling land. The landbank is essentially the developer’s stock-in-trade. The core business is to hold on to that land, build on it and sell the products.

But there are always exceptions. Tropicana says the proposed disposal, announced on Wednesday, is necessary because it wants to realise a gain from the deal and because the proceeds can be used as working capital and/or to repay bank borrowings. The company adds that the disposal is “in line with Tropicana Group’s de-gearing exercise to strengthen its financial footing”.

Naturally, the buyer’s perspective on the transaction is very different. In its announcement, Eco World describes the location of the land as “a key development hotspot” and notes that it comes with the Master Development Layout Approval, which means Eco World can start developing the land sooner than usual.

Eco World already has a name – Eco Sanctuary – and the concepts for the proposed development, and reckons that the gross development value (GDV) of the project will be about RM8bil.

Tropicana displayed the same optimism and exuberance back in April last year, when it announced its proposed purchase of 1,172 acres of “prime development land” in Canal City, Selangor, from Permodalan Negeri Selangor Bhd for RM1.3bil.

The aim was to develop “an integrated self-contained township” on the land over 15 to 20 years. At that time, Tropicana said it hoped to launch the project within two years and estimated that it could generate a GDV of up to RM20bil.

Canal City is, in fact, in Kuala Langat, and the 309 acres that Eco World plans to buy is slightly more than a quarter of that large acquisition that Tropicana had excitedly announced last April.

How things have changed in less than a year.