TWO recent deals have raised questions as to whether Malaysian companies are over paying in acquiring assets abroad.
The SP Setia-Sime Darby-Employees Provident Fund consortium is forking out 400mil pounds for the Battersea project on the banks of the Thames in London.
The Malaysian team outbid the Chelsea Football Club and its Russian billionaire owner Roman Abramovich.
Going by market talk, the Malaysian consortium is paying a whopping 100mil pounds more than what Chelsea and Abramovich, a seasoned London property investor, were willing to pay.
Then there's Petroliam Nasional Bhd's (Petronas) proposed acquisition of Canada's Progress Energy Resources Corp.
Petronas is planning to offer C$20.45-a-share for Progress Energy. That price works out to a massive 77% premium over the latter's share price before the deal.
While both deals look expensive for the Malaysian buyers, there are also reasons why the prices may be justified.
In the Battersea project, there is a big difference in the financial modelling applied to the project by the Malaysian consortium versus how Chelsea and Abramovich would be looking at it.
The Malaysians, made up of two seasoned property developers, are strictly looking at how to maximise returns from the project, solely from sales and leasing of units there, not too dissimilar in concept, to how these companies have raked in handsome profits from their property development projects in Malaysia.
Chelsea Football Club, however, would have been looking primarily at housing a new stadium at the site. While ticket sales and advertising revenues do provide attractive cash flows, these returns may not be as high as what a pure property developer may be looking at.
Development value
The Malaysian consortium has revealed that the projected gross development value from the Battersea project was around £8bil (RM39.4bil) comprising a mix of residential and commercial properties.
That's more than 90% more than the expected investment cost, made up of RM2bil for the acquisition and RM1bil more for development costs. Add to that the prime location of the project and chances are that beyond the initial hiccups if any, this one is going to pay off in the long run.
In Petronas' case, a few facts ought to be considered when examining this deal:
First up, buying Progress Energy gives Petronas ownership of the largest holder in the Montney shale-gas area of British Columbia and full control of the three Progress Energy fields it bought a stake in last year.
Stemming from that, insiders say that the premium Petronas is paying for the company, is to be linked to its belief that the gas reserves that Progress Energy has rights to, may amount to more than what has been disclosed thus far.
Long-term resources
Progress Energy is fairly familiar to Petronas. The proposed acquisition follows a joint venture established by the two companies last year to develop a portion of Progress Energy's shale assets in the Foothills of northeast British Columbia as well as on the intention to pursue the development of an integrated liquefied natural gas (LNG) export facility in Western Canada.
“This acquisition will provide Petronas with significant long-term strategic gas resources in a geopolitically stable region. It will also strengthen our conventional strategy whilst cementing Petronas' position as a major global LNG player,” Petronas president and chief executive Tan Sri Shamsul Azhar Abbas had said in a statement last week when announcing the deal.
A subsequent Bloomberg article said: “Petronas joins Asian peers including PetroChina Co, Mitsubishi Corp and Cnooc Ltd in seeking production in North America... The companies said they've selected a site at Prince Rupert, British Columbia, for a potential LNG export terminal and will conduct feasibility studies. Petronas joins groups led by Houston-based Apache Corp, Royal Dutch Shell Plc and the UK's BG Group Plc in the race to export gas from Canada's West Coast.”
Finally, it is very likely that another reason why Pertonas, which was advised by by Bank of America Corp's Merrill Lynch unit, has offered such a price is simply because it wanted to make the offer at a price decent enough to entice shareholders to sell.
News editor Risen Jayaseelan acknowledges that the subject of valuation is by definition a subjective issue and that the merits of any acqusition can only best be judged in hindsight will the assets acquired pay off in the end.
The SP Setia-Sime Darby-Employees Provident Fund consortium is forking out 400mil pounds for the Battersea project on the banks of the Thames in London.
The Malaysian team outbid the Chelsea Football Club and its Russian billionaire owner Roman Abramovich.
Going by market talk, the Malaysian consortium is paying a whopping 100mil pounds more than what Chelsea and Abramovich, a seasoned London property investor, were willing to pay.
Then there's Petroliam Nasional Bhd's (Petronas) proposed acquisition of Canada's Progress Energy Resources Corp.
Petronas is planning to offer C$20.45-a-share for Progress Energy. That price works out to a massive 77% premium over the latter's share price before the deal.
While both deals look expensive for the Malaysian buyers, there are also reasons why the prices may be justified.
In the Battersea project, there is a big difference in the financial modelling applied to the project by the Malaysian consortium versus how Chelsea and Abramovich would be looking at it.
The Malaysians, made up of two seasoned property developers, are strictly looking at how to maximise returns from the project, solely from sales and leasing of units there, not too dissimilar in concept, to how these companies have raked in handsome profits from their property development projects in Malaysia.
Chelsea Football Club, however, would have been looking primarily at housing a new stadium at the site. While ticket sales and advertising revenues do provide attractive cash flows, these returns may not be as high as what a pure property developer may be looking at.
Development value
The Malaysian consortium has revealed that the projected gross development value from the Battersea project was around £8bil (RM39.4bil) comprising a mix of residential and commercial properties.
That's more than 90% more than the expected investment cost, made up of RM2bil for the acquisition and RM1bil more for development costs. Add to that the prime location of the project and chances are that beyond the initial hiccups if any, this one is going to pay off in the long run.
In Petronas' case, a few facts ought to be considered when examining this deal:
First up, buying Progress Energy gives Petronas ownership of the largest holder in the Montney shale-gas area of British Columbia and full control of the three Progress Energy fields it bought a stake in last year.
Stemming from that, insiders say that the premium Petronas is paying for the company, is to be linked to its belief that the gas reserves that Progress Energy has rights to, may amount to more than what has been disclosed thus far.
Long-term resources
Progress Energy is fairly familiar to Petronas. The proposed acquisition follows a joint venture established by the two companies last year to develop a portion of Progress Energy's shale assets in the Foothills of northeast British Columbia as well as on the intention to pursue the development of an integrated liquefied natural gas (LNG) export facility in Western Canada.
“This acquisition will provide Petronas with significant long-term strategic gas resources in a geopolitically stable region. It will also strengthen our conventional strategy whilst cementing Petronas' position as a major global LNG player,” Petronas president and chief executive Tan Sri Shamsul Azhar Abbas had said in a statement last week when announcing the deal.
A subsequent Bloomberg article said: “Petronas joins Asian peers including PetroChina Co, Mitsubishi Corp and Cnooc Ltd in seeking production in North America... The companies said they've selected a site at Prince Rupert, British Columbia, for a potential LNG export terminal and will conduct feasibility studies. Petronas joins groups led by Houston-based Apache Corp, Royal Dutch Shell Plc and the UK's BG Group Plc in the race to export gas from Canada's West Coast.”
Finally, it is very likely that another reason why Pertonas, which was advised by by Bank of America Corp's Merrill Lynch unit, has offered such a price is simply because it wanted to make the offer at a price decent enough to entice shareholders to sell.
News editor Risen Jayaseelan acknowledges that the subject of valuation is by definition a subjective issue and that the merits of any acqusition can only best be judged in hindsight will the assets acquired pay off in the end.
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