Saturday June 22, 2013
S P Setia proves critics wrong
By ERROL OH
VINDICATION comes in many forms. And sometimes, it just keeps coming. Who can blame S P Setia Bhd president and CEO Tan Sri Liew Kee Sin if he's a tad smug about how the naysayers have been proven wrong again and again regarding the property developer's acquisition of a huge oil palm plantation in Shah Alam a decade ago?
That 4,000 acres, then known as North Hummock Estate, is the site for integrated township Setia Alam and its upscale sister township Setia Eco Park.
Both developments have shaped up into award-winning communities with much appeal among home-buyers and investors. Or as Liew puts it, they have become S P Setia's branding.
It certainly didn't start out that way. When the company announced on April Fools' Day in 2002 that it was buying North Hummock Estate for almost RM600mil cash (or RM3.49 per sq ft), the market responded with little humour.
The deal was enormous for a company the size of S P Setia, whose market capitalisation at the time was about RM1.5bil. The company had been looking to buy about 1,000 acres or so of real estate to replenish its land bank, but the owner of the estate was only interested in selling it all or nothing.
In tandem with the proposed acquisition, the developer said it needed to raise capital via a private placement, a special bumiputra issue, a bonus issue and a rights issue.
(It didn't help either that on the same day, S P Setia also disclosed its plan to pay RM52mil cash for a 22% stake in Loh & Loh Corp Bhd, a listed construction company that had carved out a niche in water supply infrastructure works.)
In fact, some investors felt the land deal was too big a purchase for the company. Liew recalls the fund managers dumping the stock and the share price “dropping like a hot brick”.
“If you look back at The Star reports in 2002, people were saying, This guy has gone crazy. He's bitten off more than he can chew',” says Liew.
People might have privately uttered something like that, but there were no StarBiz reports with such a quote. Nevertheless, the news reports did reflect some concern, primarily because the proposed capital raising would dilute earnings per shares, and the possibility that the company's bottomline would deteriorate for at least two years before income from the land started kicking in.
With the land acquisition, said an analyst, the group's earnings risk had edged higher.
In response to the announcement of the land purchase, RAM placed S P Setia's bonds on the Rating Watch list, with a developing outlook. Two months later, the rating agency reaffirmed the long-term ratings of the bonds but kept them on the list until the completion of the capital raising, which RAM said played “a critical role in providing balance to S P Setia's financial profile”.
Today, such worries seem unnecessary. According to Liew, back in 2002, the best brains in the property business were convinced that S P Setia could extract a gross development value (GDV) of no more than RM5bil from the land. It is currently estimated that when fully completed, Setia Alam and Setia Eco Park would have yielded a combined GDV of RM20bil.
Plus, there were awards to celebrate. For example, Setia Eco Park was twice a gold winner in the Fiabci Prix d'Excellence Awards in 2007 for Best Master Plan and in 2011 for Best Residential (Low-Rise) Development.
Last month, Liew travelled to Taichung, Taiwan, to accept another gold award in the master plan category. This was for Setia Alam. To him, it was detailed planning and teamwork that turned a potential indigestion-inducing buy into a benchmark project.
With a larger-than-targeted tract of land on its plate, S P Setia had little room for mistakes. In this case, the road to success was, well, a stretch of road. More accurately, what made a difference was the company's decision to fund and build the RM150mil Setia Alam Interchange, which allowed direct access from the New Klang Valley Expressway to the two townships.
Other crucial moves were the disposal of about 600 acres to PKNS (the Selangor State Development Corp) to immediately boost cash flow, and teaming up with the Employees Provident Fund (EPF) and Great Eastern Life Assurance (M) Bhd to develop Setia Eco Park.
Liew attributed these winning measures to others at S P Setia. “I'm only the guy with the guts, the one who pushes, the talker. But these alone can't solve problems. I depend on my people to do that. They are the ones who sit down and come up with solutions,” he says.
“It's not just about guts. Teamwork is very key. We have a strong team that come up with the detail, the plans, the right concepts.”
Which explains why Liew wasn't the only person from S P Setia at the Fiabci event in Taichung. The company had about 50 people there as part of a nine-day study trip to Taiwan and Seoul, South Korea, to visit commercial and recreational developments such as parks, integrated projects, museums, train stations and convention centres.
Liew says it is a standard practice to bring along employees on study tours whenever the company gets an award overseas. “So not only do we receive an award, we also learn something. We've been to so many places together. That's how we build up our Team Setia. We don't do things alone; we do things as a group.”
Of course, the choice to visit these places in Taiwan and South Korea has a lot to do with what S P Setia plans to in the future.
Setia Alam is at the mid-way mark and the next phase centres on the 150 acres earmarked for commercial properties such as office towers, the second stage of the Setia City Mall and a hotel that will be ready by the end of next year. The township also has the biggest convention hall in Shah Alam.
“The next game changer for us will be commercial development,” says Liew.