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What’s Behind Frasers Centrepoint’s Latest Business Partner?

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It’s likely that most share market participants would have heard of Frasers Centrepoint (SGX: TQ5) given that it is one of the largest property developers and owners in Singapore with a market capitalisation of S$5.10 billion.

The company had only recently got spun-off from Fraser and Neave (SGX: F99) and is the sponsor of two major real estate investment trusts here (the REITs are Frasers Centrepoint Trust  (SGX: J69U) and Frasers Commercial Trust  (SGX: ND8U)). These two facts would also have helped make Frasers Centrepoint even more recognisable amongst the public.

Meanwhile, Keong Hong Holdings (SGX: 5TT), a building construction service provider and a niche property developer with a market capitalization of just S$96.8 million, would very likely be an unfamiliar company for most.

Given all the above, it might seem that the two companies have very little in common that would bring both together to form business partnerships. But just last week, Frasers Centrepoint and Keong Hong Holdings joined forces to become the highest bidder for a leasehold executive condominium residential project in Sembawang. According to The Business Times, the partnership had sent in a bid of S$214.08 million for the 2.22 hectare site, which can house around 620 residential units in total when fully developed.

Why work together?

The project seems to be on a really small scale for Frasers Centrepoint, especially when considering how the company won the bid for a site in Telok Ayer Street for S$924 million last year all by itself.

As there is a lack of information on the Sembawang project currently, I can only come up with conjectures. Perhaps Keong Hong is the main bidder for the site but needed a partner with more financial resources to help it out with the project.

Or maybe Frasers Centrepoint is no longer as optimistic about Singapore’s residential property market and would prefer to spread its risks by looking for partners when developing new properties in Singapore. Frasers Centrepoint’s recent bid for Australand, one of the largest property owners in Australia, might be a sign of the company’s desire to diversify its businesses away from Singapore .

Foolish Summary

Whatever the real reason(s) might be, one thing is for sure: This project is far more important for Keong Hong than it would be for Frasers Centrepoint. Having a strong developer as a partner might be extremely valuable for Keong Hong in this case.

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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 owns Frasers Centrepoint Ltd