Yesterday, Crest Builder's name appeared on the front page of Financial Daily - linked to UDA's Pudu redevelopment project. Some people from the media and the industry have asked me about it - and here's my reply - yes, we did submit a bid for the turnkey investor/developer project, we were amongst the ones invited, and by merit, we are one of the shortlisted.
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KUALA LUMPUR: The Ministry of Finance (MoF) is soon due to make yet another crucial decision which could be a defining moment for UDA Holdings Bhd, which is caught between its own survival and its social responsibility to the bumiputera agenda.
A source from the ministry said UDA has been asked to make a submission on the shortlisted potential developers and their plans. It is also learnt that UDA’s board of directors has been asked to convene a meeting to shortlist the potential developers. This comes after UDA was said to have submitted a list consisting of five companies, and this initial list was said to have gone to the tender committee at the ministry. In the next few months, the MoF is to choose a partner to develop one of UDA’s last remaining crown jewels — the 8ha site on the former Pudu Jail.
According to another source, the five companies listed were China-based Everbright International Construction Ltd, a joint venture (JV) between Crest Builder Holdings Bhd and Detik Utuh Sdn Bhd; Asian Pac Holdings Bhd; a JV between Kumpulan Jetson Bhd and a China-based company; and a Sarawak-based company. The initial list of 11 companies that submitted proposals was said to include big names such as Malaysian Resources Corp Bhd, Bolton Bhd, Naza TTDI Sdn Bhd and UEM Land Bhd.
This would be the second involvement of the MoF in UDA. To recap, the MoF last week had rejected UDA’s proposed sale of 3.56 acres of prime land in Jalan Sultan Ismail in Kuala Lumpur to Nadayu Properties Bhd. That sale would have put RM215.5 million into UDA’s coffers. Although the ministry did not provide any reason for its decision, it is learnt that Nadayu, formerly known as Mutiara Goodyear Development Bhd, does not have the appropriate level of bumiputera shareholding.
Nadayu’s largest shareholder is listed Atis Corp Bhd, which owns 60.8% of the property developer. Atis Corp, in turn, is 42.88% directly and indirectly-owned by its managing director, Chen Khai Voon, according to its annual report for 2010.
UDA and its chairman Datuk Nur Jazlan Mohamed had earlier come under fire from bumiputera rights groups and Umno Youth members when the sale of the land was first announced. They had alleged that UDA was sidelining bumiputera interests in owning a piece of prime land in the city centre. While this issue has simmered down with the abortion of the sale, the key decision involving the Pudu Jail land is coming up soon.
And the Pudu Jail redevelopment project is vital to UDA.
It would bring in new sources of recurring rental income, estimated at RM200 million to RM300 million a year, and more importantly, a more secure future for the company, said Nur Jazlan in an interview with The Edge Financial Daily last month.
Several questions have arisen from this episode.
For a start the MoF-owned UDA appears not to have the powers to make decision on huge projects such as the Pudu Jail project, despite having a board of directors made up of professionals. Market observers say this does not bode well for UDA as it comes across as merely an intermediary between potential business partners and the government.
That being the case, why not revert to its old status as an authority body instead of being a private entity which is expected to be profitable and yet at the same time be tasked with carrying out its social responsibility for the bumiputera agenda? That’s the question asked by many observers, noting that it is difficult to balance between the two objectives.
Nur Jazlan had also said previously that in the light of UDA’s dire financial status (with debts of about RM900 million and cash of RM90 million), UDA must be smart when developing its assets. “For UDA, there has to be the profit motive first and the bumiputera agenda second,” he said. Nur Jazlan had also reassured the bumiputera community that UDA’s participation in the Pudu Jail project is assured. Even if a bumiputera company was not appointed the developer, he said that there are plenty of opportunities in the project.
For the Pudu Jail land project, it is understood that the JV partnership would have to first construct, at an estimated cost of RM600 million, a huge complex comprising several floors of parking spaces, a retail mall and a public transport hub that can house 180 buses. The RM600 million cost is to be borne entirely by the partner, but ownership of the complex goes to UDA, as consideration for the “land rights”.
With such stringent terms which UDA is not about to compromise on, a strong balance sheet and heavy financial commitment on the project from the JV partner are needed, as it will need to sink in RM600 million while not seeing any returns during the construction tenure of four years.
Most important of all, the partner cannot charge the “land rights” to secure financing for the project, and will still have to produce a bank guarantee amounting to RM600 million. It was learnt that it was the “no charging of land rights” clause that resulted in some of the big local names not making the cut. According to an industry source, there is preference to go with a foreign partner in developing the Pudu Jail land, as it will have the strong financial backing needed for the project.
“The main fear of having a local partner is the possibility of flipping the project to a third party. What happens if the third party is financially strapped halfway through the project? It will be very messy with many parties involved,” he said. Whether UDA can put profit first and the bumiputera agenda second will be another question that MoF needs to answer looking at both the financial health of the company and also the political scenario of the country, especially with snap general election looming. Already there are talk in the industry that the project’s forerunner China-based Everbright is no longer in the running due to the non-bumiputera and non-local factor.
It appears that MoF needs to strike a delicate balance of UDA receiving income (since it no longer receives injection from the government) for it to continue to survive and develop projects, while ensuring the bumiputera that the bumiputera agenda has not been sidelined.
This article appeared in The Edge Financial Daily, July 26, 2011.
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