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Business Advice

More local firms move to Iskandar

SINGAPORE companies are relocating to Iskandar Malaysia at such a rapid pace that OCBC Bank expects a threefold surge in loans resulting from these moves over the next two years.
The Straits Times - April 11, 2013
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More local firms move to Iskandar

SINGAPORE companies are relocating to Iskandar Malaysia at such a rapid pace that OCBC Bank expects a threefold surge in loans resulting from these moves over the next two years.

OCBC's loans to small and medium-sized enterprises (SMEs) from Singapore either setting up operations in Iskandar or already operating there doubled last year from the year before.

Local firms are seeking new pastures amid rising business costs and labour shortages.

Loans to such firms will likely rise by another RM500 million (S$203 million) this year and by three times over the next two years, said OCBC's head of emerging business, Mr Tan Chor Sen.

Although Iskandar has been in development since 2006, local firms began paying close attention to the region only from 2010, he added.

"It coincided with the availability and readiness of infrastructure there, and also during that time, China had become a pretty expensive place to do business, so Iskandar began to attract interest."

Firms that have moved some of their operations to Iskandar are making overall cost savings of about 30 per cent, Mr Tan noted.

Many are also relocating because they can get more space for the same amount of money.

A factory space at Ubi Techpark here of 8,998 sq ft, for example, would cost between $460 and $505 per sq ft on a 60-year lease.

In Iskandar's Zone B - where much of the economic activity and development is taking place today - a freehold 7,488 sq ft industrial space would cost just RM350 per sq ft. In Zone E, which includes areas such as Senai and Skudai, a freehold industrial space would cost even less, at RM250 to RM300 per sq ft.

But relocation to Iskandar is not without its challenges. Mr Tan noted that high-skilled labour can be difficult to come by there, and many companies are unsure about what kind of financing they should opt for or what type of corporate and capital structures they should form.

For example, some SMEs choose to set up their Iskandar operations not as subsidiaries but as totally separate entities with different shareholders altogether, he said.

"But they have to know what their endgame will be. It's easy to put someone you're familiar with as a shareholder to run the firm, but is that what you want as your company grows bigger?"

Some firms are also uncertain about whether they should take up loans in Singapore dollars, Malaysian ringgit or US dollars, Mr Tan said.

This really depends on what currency the company's receipts are in and what their operations in Iskandar will do.

As Iskandar's infrastructure takes shape, a wider range of companies are relocating there and for different reasons, he added.

The first wave of firms relocating to Iskandar were mainly small companies seeking a low-cost operating environment with plenty of space for capital-intensive activities, he said.

Today, as more industrial parks are being developed, medium-sized firms and even multi-nationals are relocating to Iskandar.

Eventually, what this means is smaller players who may not have planned to relocate to Iskandar might have to do so anyway, so that they can continue supporting these big firms.

"This will be a new trend that we expect to see," Mr Tan said. "We are seeing three to four times more inquiries - and it's still growing - compared with the beginning of last year and the year before, and it's kept us very, very busy."

A third of the Singapore SMEs with operations in Iskandar bank with OCBC, Mr Tan said.

The bank has 50 relationship managers in Malaysia and 10 here who focus on supporting SMEs going to Iskandar.

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