KUALA LUMPUR (Reuters) - Malaysian property developer S P Setia Bhd (SETI.KL) said on Friday it will buy privately held rival I&P Group for over 3.5 billion ringgit ($794.55 million) to create one of the country's largest real estate firms.
The deal comes at a time when the local real estate market has been hit by tighter lending rules and softer purchasing power due to a weaker economy.
Both real estate companies are overseen by state investment fund Permodalan Nasional Bhd (PNB), which has in recent months said it intends to restructure its core portfolio and rationalize its property investments.
"This combination will create the largest property company in Malaysia and one of the leading players, with a total land bank of close to 10,000 acres," said PNB president and group chief executive officer Abdul Rahman Ahmad. PNB was ready to provide the necessary capital support for the deal, he said.
PNB owns 63.5 percent of S P Setia, showed Thomson Reuters data, while I&P Group is a wholly owned subsidiary of the fund.
The indicative price for the proposed acquisition is estimated to be within the range of 3.5 billion ringgit to 3.75 billion ringgit, S P Setia said in a stock exchange statement.
It plans to fund the acquisition with a combination of equity, internally generated funds and borrowing.
Maybank Investment Bank Research property sector analyst Wong Wei Sum said the deal was a "rational" move by PNB as a weak market provided opportunities to buy assets at cheaper values. There could be more deals in the sector, she said.
"Some may want to privatize their companies now due to cheaper share prices and could relist when the market returns," Wong said. Developers could also pursue reverse takeovers of listed firms, she added.
Last month, Iskandar Waterfront Holdings Sdn Bhd, controlled by property tycoon Lim Kang Hoo, offered to buy Iskandar Waterfront City Bhd (IWCI.KL) in a "back door" listing of one of the country's biggest property firms.
Conglomerate Sime Darby Bhd (SIME.KL), of which PNB owns 50 percent, in January said it would spin off its property and plantation businesses.
Trading of S P Setia's shares was suspended on Friday ahead of the announcement.
($1 = 4.4050 ringgit)
Reporting by Liz Lee; Writing by A. Ananthalakshmi; Editing by Vyas Mohan