PETALING JAYA: An analyst has explained that cost overrun for the Battersea Power Station retail and residential development project in the UK, in which Malaysian companies are heavily involved, is understandable due to the specialised work required.
Sarah Lim Fern Chieh, head of equities research at Kenanga Investment Bank, was quoted by The Edge today as saying that the project’s pre-tax profit margin was on the whole more than 20%.
This was despite a sizeable portion of the original design structure having to be maintained in Phase 2 of the project, which involved the redevelopment of the station and its four chimneys, she said.
“From what I understand, it is not as simple as the developer just bulldozing the place.
“It is a heritage site, so there are strict procedures to follow,” she was quoted as saying.
“The project needs to be redone part by part.
“Also, a lot of specialised work is needed. For example, the bricks used for the project need to come from the original source, any asbestos has to be carefully removed, and the redevelopment of the heritage building has to meet structural integrity standards, all of which make it an exorbitant affair.”
On Jan 19, the Employees Provident Fund (EPF) and Permodalan Nasional Berhad (PNB) confirmed that they had signed a heads of terms (or letter of intent) on the purchase of commercial assets in the second phase of the development project.
They said EPF directly owned 20% of the Battersea Power Station development and PNB held majority stakes in SP Setia and Sime Darby Property, which jointly owned 80% equity in the development.
They also said the first phase consisted largely of residential units, and was completed with 100% take-up rate, while the residential component of Phase 2 was almost fully taken up.
Phase 2 was expected to be completed by late 2020 and had also been pre-let to anchor tenants such as technology giant Apple for a 500,000 sq ft tenancy, they said.
Earlier, London’s Evening Standard newspaper reported that the proposed purchase came after the cost of transforming the brick structure doubled from an initial forecast of about £750 million (RM4 billion) to around £1.5 billion.
It claimed the spiralling costs had meant the profit return on the scheme had been cut from 20% to 8.2%.