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Why Is Keppel Land Selling Its Assets On The Cheap?


Keppel Land (SGX: K17), the property arm of conglomerate Keppel Corporation (SGX: BN4), announced in May that it will be selling its interests in one of its residential development projects in India.

The 1,278 unit Elita Garden Vista condominium project in New Town, Rajarhat Kolkata, is currently being developed by Keppel Magus Development. Keppel Land, which previously owned 37.74% of Keppel Magus Development, had completed the sale of its stake in the latter this week.

Incidentally, Keppel Land is also currently in the process of selling off its investment property, Equity Plaza in Singapore, to a consortium that includes GSH Corporation (SGX: J16) and Vibrant Group (SGX: F01).

Keppel Land and its partners had all sold their stakes in Keppel Magus Development to BMS Realty Private Limited for a total sum of INR901 million (around S$18.4 million). Interestingly, at the time of the sale announcement, Phase 1 of the project (Elita Garden Vista was to be built in two phases of 688 and 590 units each) had just been completed.

There was no explanation from Keppel Land on why it is selling off the Elita Garden Vista project. But from Keppel Land’s own webpage, Phase 1 of the project appeared to be quite the success with 94% of all units sold as of the end of March 2014. Although the project is small in comparison to the size of Keppel Land’s total project base, the sale actually marks the end of one of the company’s only two projects in India; the other project that Keppel Land has in the country is the Elita Horizon in Bangalore.

With Phase 2 left in the Elita Garden Vista project, Keppel Land is actually selling off the potential profits for the remaining 590 units. At a sale price of S$18.4 million, Keppel Land seems to think that the units in Phase 2 of the project are worth only S$31,200 each; that seems to me to be a very small sum for an upscale condominium project.

From Keppel Land’s 2013 annual report, the company stated that it is expecting “marginal improvement” in its project in Kolkata after India’s state elections in that year were completed. An interesting question is thus raised: Why would Keppel Land and its partners want to sell a project that has performed reasonably well at (what seems to me to be) a depressed price?

Foolish Summary

Although we might never know the real reason for the sale, investors should be grateful that this project does not have a significant impact on Keppel Land’s earnings.

It is challenging and complicated to do business in India. Even though Keppel Land had chose to sell its project instead of completing it, investors should probably not fault management too much for trying to open new markets for the company outside its core markets of Singapore and China. As it is, Keppel Land currently has projects in new markets such as Sri Lanka, the Philippines and Saudi Arabi.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.