Rowlsey Limited Is Embarking Again On A Huge Growth-Project: What Does It Mean For Investors?

Property developer Rowsley Limited (SGX: A50), which is linked to Singapore billionaire Peter Lim, has decided to restart an old project, Vantage Bay, in the Iskandar region of Johor, Malaysia.

Plans for Vantage Bay were first proposed by Rowsley back in 2012 with construction to begin in 2013. But, the company had decided to hold off due to weak market sentiment and a possibility of over-supply in the Iskandar real estate market.

Rowsley announced yesterday that it has finally dusted off Vantage Bay and is looking to go full steam ahead – this time with a new set of plans for the 9.23 hectares plot of land that’s located along the Johor Straits, directly overseeing Singapore.

Vantage Bay was initially conceived as an integrated development with residential, retail, hospitality, and commercial elements.  The new plans (more to come shortly) however, represent a significant shift. The new Vantage Bay will have a total development value of RM5.0 billion (around S$1.82 billion), a little lower than the original development value of RM5.5 billion.

A whole new world

According to Rowsley’s presentation deck for Vantage Bay’s repositioning, the new project will have three main spokes: A Wellness Hub, a Medical Hub, and an Education Hub.

The first will contain hotels, retail malls, spas, resorts, pharmacies, and more. The third will include dormitories, research institutes as well as training facilities for medical students. This ties into Rowsley’s plans for the Medical Hub.

The Medical Hub of the Vantage Bay project includes three hospitals – one of which belongs to Lim and not Rowsley – that have a collective bed capacity of 850 beds in total. The two hospitals under Rowsley’s umbrella include a Specialist Hospital, which may provide specialist services in specialisations like oncology and heart, and a Community Hospital.

Rowsley will not be operating the hospitals and will instead be partnering with healthcare groups that are based in Singapore and/or Malaysia.

How well Vantage Bay does will likely have a significant impact on the fortunes of Rowsley itself. This is because Vantage Bay’s estimated development value of RM5.0 billion is around three times Rowsley’s market capitalisation of S$649 million as of 22 September 2015.

Warning signs to look out for

Rowsley has mentioned that it will be funding the Vantage Bay project with internal funds and bank financing. As of 30 June 2015, Rowsley held S$124 million in cash and had S$99 million in borrowings.

Given the size of Vantage Bay, a huge chunk of debt will very likely be needed by Rowsley. The use of borrowings adds financial risks to a firm.

Moreover for investors, there is even a risk that Rowsley may need to issue new shares (through private placements or rights issues) in order to raise the development capital needed. This risk is worth noting given that it’s a firm’s per-share growth that can ultimately drive value for shareholders; if significant dilution occurs with Rowsley, existing investors may not get much benefits even if Vantage Bay becomes a roaring success.

Foolish Summary

It’s a bold move by Rowsley to kick Vantage Bay into gear aagain. There are certainly risks involved, but it gives the company the opportunity to become a developer of repute in the region if things go according to plan.

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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.