By Yantoultra Ngui
KUALA LUMPUR, Dec 4 (Reuters) - Malaysia has granted asubstantial tax break to a zone in a showpiece investmentproject near Singapore, a move likely to provide crucial supportto a $800 million initial public offering of the area'sdeveloper next year.
The Medini area in the southern state of Johor is the onlysection of the $30 billion Iskandar Development Region to get anexemption from a 30 percent property gains tax announced inOctober to cool soaring property prices, government officialssaid.
The area is being developed by Medini Iskandar Malaysia, acompany that is 60 percent owned by Iskandar Investment, acorporation controlled by sovereign fund Khazanah Nasional Bhd. Japanese conglomerate Mitsui & Co Ltd andDubai-based realtor United World Infrastructure each own 20percent.
"Medini in 2006 and 2007 was a sparsely populated area andnot a preferred investment location," Ismail Ibrahim, chiefexecutive of Iskandar Regional Development Authority (IRDA),told Reuters when asked why the area received an exemption.
"The objective is to provide the catalyst to driveinvestments into Medini," he said. Since its inception in 2006,Medini was exempt from property gains taxes.
Medini Iskandar declined to comment about the latest taxexemption.
The tax break, however, means the company should be able toattract more funds into the Medini area, helping the prospectsfor its IPO as well as the government, which is seeking to luremore investors, especially from cash-rich Singapore, into theIskandar region without inflating a broader property bubble.
"It (the exemption) certainly gives it an edge over othersin Iskandar," said a banker involved in Medini Iskandar's IPO,which is excepted to be launched in the first half of 2014.
Bank of America Merrill Lynch, Goldman Sachs and Maybank have been chosen to manage the planned listing, according toThomson Reuters publication IFR.
Other major listed developers in the Medini zone include MahSing Group, Sunway Bhd, Eastern & Oriental and WCT Holdings Bhd.
The whole Iskandar region has seen property prices climb inrecent years due to speculators and higher demand fromSingaporeans seeking a break from sky-high prices in thecity-state. U.S., European and Chinese firms have also realisedthe potential of the area as a manufacturing hub.
The recent tax hike has left other Iskandar developers likeIskandar Waterfront, partly owned by Johor state, and UEMSunrise Bhd, Malaysia's biggest real estate company,bracing for a chill next year.
Both companies declined to comment when asked about the taxexemption for Medini.
Iskandar Waterfront, which is developing a zone directlyacross the causeway that links Singapore with Johor Bahru city,has, however, delayed a $300 million IPO to the end of 2014 fromthe first quarter to gauge the impact of the property coolingmeasures, people with knowledge of the matter said last month.
The sources declined to be identified because theinformation was confidential.
The Iskandar Development Region struggled to attractinvestors at first, but improved infrastructure and soaringproperty prices in Singapore burnished its appeal.
Total committed investments by local and foreign firms inthe area until September this year amounted to 128.21 billionringgit ($39.87 billion), almost ten times a much as when thezone was first set up in 2006, IRDA officials said.
Local investors account for almost 65 percent of the total.
Medini, the largest township across the narrow strait fromSingapore, is only a small part of one of the five sections thatmake up the Iskandar Development Region.
The area that was once mostly rubber and palm plantations isnow home to a popular Legoland theme park resort, a productioncentre for Britain's famed Pinewood Studios as well as some ofthe most developed infrastructure in the whole Iskandar region,government officials say.
Medini Iskandar has so far spent 5.9 billion ringgit ($1.8billion) on developing the area, with $600 million going onwell-lit roads and sewage treatment facilities. The rest was aninitial capital injection, according to the company website.
"Medini came in at a time of doldrums, nobody wanted to goto Iskandar," Shahrir Abdul Samad, a member of parliament forJohor Bahru, the state capital of Johor, told Reuters.
($1 = 3.2160 Malaysian ringgit) (Editing By Niluksi Koswanage, Stuart Grudgings and MiralFahmy)
- Iskandar Development Region
- Medini Iskandar Malaysia