Published March 22, 2008

Bad times throw up good opportunities for CapitaLand

As credit crunch lays rivals low, it's ready to swoop on bargains in next 2 years: CEO


A LOT of opportunities will be thrown up in the real estate market in the next two years and CapitaLand is well placed to take advantage of them, chief executive Liew Mun Leong says.

'There will be distressed properties, distressed companies. We can probably buy land cheaper and even acquire companies,' said Mr Liew in an interview with BT this week.

He said the current credit crunch is making borrowing very difficult for real estate companies whose balance sheets are not too strong. Meanwhile, it is also difficult to tap the capital market for funds.

'If banks are now restricting their exposure to you in direct lending, and the capital market is now very cautious, then funding becomes a problem,' he said. 'For us, we are very well capitalised. Banks still trust us to do the normal borrowing. Our gearing is only 0.47. For every 0.1 increase in gearing, we can raise $1 billion. And we can still have access to the capital markets.'

CapitaLand group chief financial officer Olivier Lim pointed out a big difference between now and the Asian financial crisis 10 years ago: then, the cost of funds was going up; now, it is going down, with the US Federal Reserve continuing to ease interest rates. 'So those who have access to funds are getting them cheaper,' he said.

Added Mr Liew: 'At the end of the day, some of our competitors will be weakened. And our relative combat power - to use a military term - will be stronger.' With lower land costs and lower financing costs, CapitaLand will also be able to maintain its margin, he added.

In fact, CapitaLand currently has ready ammunition at its disposal.

In the last nine months, it raised $2.3 billion in convertible bonds, at 2.9 per cent and 3 per cent. And the conversion premium was pretty high.

In addition, CapitaLand has $12 billion worth of investible private equity funds for the different sectors of the market.

Mr Liew said CapitaLand's failure to clinch the integrated resort (IR) projects might have been a blessing in disguise.

'If we had a few billion dollars of debt for that kind of big-ticket item, in the current credit crunch landscape, I think it's going to be a big burden on the balance sheet,' he said.

Mr Liew does not think there will be a quick rebound from the current credit crunch.

He said: 'The problem is getting worse. If you'd asked me last month, I would have said it's still not so bad. This month, it's worse. I can't pretend to know when it will be over; some people say a few years. It's like a sick man - the fever is rising, and now, worse, there's diarrhoea. We need to stop the diarrhoea first, and then wait for the fever to go down. All I can say is, it's not a pretty picture.'

CapitaLand, said Mr Liew, will continue to invest despite the strong headwinds ahead. It was through investing in the bad years of 2001 and 2003 that CapitaLand reaped record earnings in the last two years.

'You have to invest. It takes time to plant the seeds and reap the rewards. Our fruits in the last two years were planted in those bad times when we had the perfect storm of the dotcom bust, the bombing of the US World Trade Center, Sars, the Iraq war and the two Bali bombings,' he said.

Mr Liew's vision is for CapitaLand to be the Nokia or Nestle of Singapore - that is, a truly international company.

'In 5-10 years' time, I aim to have CapitaLand as the top three or top five real estate companies in Asia; we are now Number 9 or 10. I want all our overseas businesses to be run by the locals. And I want each of our major markets to have a representative on our board of directors.

'Singaporeans will look for new businesses to grow the group, look at asset allocation and have an overview of the various businesses,' said Mr Liew.