Stockwatch- Sunway City announces JV agreememt to develop condo project in Hyderabad
| Subject | : | SUNWAY CITY BERHAD ("SUNCITY") - JOINT DEVELOPMENT AGREEMENT BETWEEN SUNWAY CITY INDIA PRIVATE LIMITED AND PRAJAY ENGINEERS SYINDICATE LIMITED |
Contents :
1. INTRODUCTION
We wish to announce that Sunway City India Private Limited ("SCIPL"), a wholly-owned subsidiary of SunCity, had on 28 December 2006, entered into a Joint Development Agreement ("JDA") with Prajay Engineers Syndicate Limited ("PESL") to jointly undertake a residential condominium development on all that piece of land situated in Survey No. 78/B, Hafeezpet Village, Serilingampally Mandal, Ranga Reddy District, Hyderabad measuring approximately 5 acres ("the Land") [hereinafter referred to as "the Proposed Joint Development"]. 2. INFORMATION ON SCIPL AND PESL
2.1 SCIPL
- SCIPL is a company incorporated in India and having its registered office at No. 20, Uniworth Plaza, Sankey Road, Bangalore 560 020. The authorised and paid-up share capital of SCIPL are Rs100,000,000/- and Rs100,000/- respectively. The principal activities of SCIPL are property development and investment.
2.2 PESL
PESL is a company incorporated in India and having its registered office at 4-1-2/4, Ramkote, Hyderabad. The authorised and paid-up share capital of PESL are Rs350,000,000/- and Rs210,298,290/- respectively. The principal activities of PESL are property development and investment.
3. SALIENT TERMS OF THE JDA
- Subject to SCIPL being satisfied with, inter alia, due diligence investigation on the Land, SCIPL shall complete the Proposed Joint Development in accordance with the terms of the JDA.
Pursuant to the JDA, the parties agreed to share the constructed areas of the Proposed Joint Development in the following manner at the option of SCIPL:
Option 1
| No. | Sale Price | PESL's share | SCIPL's share |
| a. | If the average sale price realised is equal to or less than Rs3,500/- per sq. ft. | 45% | 55% |
| b. | If the average sale price is equal to Rs4,000/- per sq. ft. | 50% | 50% |
| c. | If the average sale price is more than Rs3,500/- but less than Rs4,000/- per sq. ft. | Proportionate adjustment | Proportionate adjustment |
In the event that the average sale price exceeds Rs4,000/- per sq. ft., the exceeded amount shall be shared equally by both parties, after adjusting any cost overrun as provided in the JDA.
Option 2
The parties shall each be entitled to 50% of the constructed areas of the Proposed Joint Development respectively and SCIPL shall be entitled to put some or all of SCIPL's share of the constructed areas to PESL at Rs4,000/- per sq. ft.
4. RATIONALE
- The Proposed Joint Development represents the first entry of SunCity in the booming real estate market in India and is expected to be the pioneering project for SunCity to secure future possible property projects in India. The Proposed Joint Development affords SunCity the opportunity to develop prime land in India without investment in land acquisition and gain direct access to local property development experience via strategic partnership with PESL.
5. FEASIBILITY STUDY
- The management team of SunCity, the holding company of SCIPL has conducted a feasibility study based on the preliminary high rise residential development concept with a gross development value of Rs3.8 billion (approximately RM300 million). A study tour, consisting of representatives from valuers, marketing experts and cost consultants, was carried out in Hyderabad, India to assess the relevant market conditions of the property development, including but not limited to the supply and demand situation, property pricing and taking into account several local market comparisons and competitive benchmarks. It also reviewed the local development cost structures including the cost of materials, statutory contribution, professional fee, marketing and related expenses as well as related cash flow requirements.
The study revealed that SCIPL's return is assured by a put option to sell its share of the constructed areas to the Joint Development partner, PESL at Rs4,000/- per sq. ft. and at the same time, PESL has also provided certain cost assurance on the construction cost. In addition, there is no requirement to acquire the Land for the Proposed Joint Development. These provide additional contingency and attractiveness for SunCity to venture into a relatively new market overseas. Based on the results of the study, SunCity's management is of the view that the project financials are sufficiently attractive for SunCity to proceed with the Proposed Joint Development.
6. PROSPECTS
- India's vibrant economic growth, rising income levels, growing middle class and increasing urbanisation are creating new demand for the real estate market. The Indian Government's decision to permit 100% foreign direct investment on the automatic approval route in construction and to allow venture funds in real estate have enhanced the competitiveness of the Indian real estate market and fueled foreign interest in the burgeoning market. As a result, the real estate market in India has been growing 30% annually and is expected to be worth USD90 billion by 2015.
In Hyderabad, the sixth largest city of India, real estate prices have increased by 60% to 70% over the past 2 years. This double-digit growth is attributed to increasing demand by both residential and commercial sectors, specifically the office sector, led by the spurt in the technology sector. With Hyderabad's emergence as India's Information Technology ("IT") and biotechnology hub, the number of professionals employed by the IT & Information Technology Enabled Services Sectors is set to continue growing by 25% per annum, over the next 5 years. All these factors have promoted the bright outlook for the real estate sector.
The real estate market in India has also been identified as a fledgling space for developers with proven track records and overseas developers that can inject offshore talents and creative ideas, provide technological transfers, management and marketing expertise into the industry.
The Proposed Joint Development of high rise residential development, carrying international brand name of SunCity, is expected to fit well in the local property market where there is a pent-up demand for high quality condominium living equipped with security and facilities.
7. RISK FACTORS
- The Proposed Joint Development is subject to certain risks in the real estate industry in India. These include changes in general economic conditions such as, but not limited to inflation, taxation, foreign exchange, interest rates, constraints in labour and material supply, changes in business and operating conditions such as, but not limited to government and statutory regulations, deterioration in prevailing market conditions and industrial disputes. New entrant to the real estate market will likely take time to understand the local industry nuances such as changes in regulations on zoning, land acquisition procedures and permissible floor space index (which determines the total construction area as proportion to the total land area). These industry risks are mitigated by having PESL being the local experienced partner in the Proposed Joint Development. The Proposed Joint Development may face competition from other property projects especially local developers with proven track records and foreign developers that carry international brand name. Nevertheless, the local property market remains largely untapped, fragmented, unorganised and lack of refreshing ideas and international quality design. The Proposed Joint Development seeks to be differentiated by introducing the foreign design and new quality standard and taking all necessary steps to maintain competitive edge and gain market acceptance.
Similar to any other business, there will be inherent risks such as the breakout of local political and social unrest or other emergencies could adversely affect the performance and business of the Proposed Joint Development. The Management recognise that these shall be monitored through in depth understanding on the local political and social environment and apply forward planning and proactive steps to early detect the risks and mitigate them accordingly.
8. SOURCE OF FUNDS
- SunCity will fund its participation in the Proposed Joint Development through internally generated funds and borrowing. SCIPL plans to undertake the development via its capital investment, funds generated from the Proposed Joint Development and borrowing from the local financial institutions in India.
9. EFFECTS OF THE JDA
9.1 On Share Capital and Substantial Shareholders' Shareholding
- There will be no effect on the share capital and substantial shareholders' shareholding of SunCity as the JDA does not involve any allotment or issuance of new shares by SunCity.
- The JDA is not expected to have any immediate material effect on the earnings per share and net tangible assets per share of SunCity for the current financial year ending 30 June 2007 but is expected to contribute positively to the future earnings of SunCity.
10. APPROVALS REQUIRED
- The JDA does not require approval from the shareholders of SunCity or any government authorities in Malaysia.
11. DIRECTORS' AND MAJOR SHAREHOLDERS' INTERESTS
- Insofar as the directors are aware, none of the directors or major shareholders of SunCity or persons connected with them has any interest, direct or indirect, in the JDA.
12. STATEMENT BY THE BOARD OF DIRECTORS
- The Board of Directors of SunCity is of the opinion that the JDA is in the best interests of SunCity.
13. DOCUMENT AVAILABLE FOR INSPECTION
- The JDA is available for inspection at the registered office of SunCity at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 46150 Petaling Jaya, Selangor Darul Ehsan during normal business hours (9.00 a.m. to 6.00 p.m.) from Monday to Friday (except public holidays) for a period of 3 months from the date of this announcement.
This announcement is dated 4 January 2007.
posted by gsg @ 5:03 PM
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