United Malayan Land Bhd (UM Land or Company)

Proposed joint venture arrangement with Malaysian Resources Corporation Berhad
(MRCB) to govern a joint venture company (JV Company) (Proposed Joint Venture);
and

Proposed acquisition by the JV Company of 8,250 square metres of land in Kuala
Lumpur Sentral from Kuala Lumpur Sentral Sdn Bhd (KLSSB) for a cash consideration
of RM38 million (Proposed Acquisition)
(collectively referred to as Proposals).
1.
INTRODUCTION
The Board of Directors of UM Land wishes to announce that UM Land had on 28 April 2004
entered into a joint venture and shareholders’ agreement (JVSA) with MRCB to govern a JV
Company for the proposed acquisition of a parcel of land measuring approximately 8,250
square metres held under Geran 46228, Lot 80, Seksyen 70, Bandar Kuala Lumpur, District of
Kuala Lumpur, in the state of Wilayah Persekutuan Kuala Lumpur (Lot L).
The JV Company had on the same date entered into a conditional sale and purchase
agreement (SPA) with KLSSB to acquire Lot L for a cash consideration of RM38 million. The
JV Company will subsequently develop two (2) blocks of condominiums comprising six
hundred (600) units with car park and recreational facilities on Lot L.
2.
PROPOSALS
2.1
Proposed Joint Venture
Pursuant to the JVSA, UM Land and MRCB will form a JV Company in which UM Land will
hold 70% equity interest in the JV Company whilst MRCB will hold the remaining 30% equity
interest.
2.1.1
Background information on MRCB
MRCB was incorporated in Malaysia under the Companies Act, 1965 (Act) as a private limited
company on 21 August 1968 under the name of Perak Carbide Corporation Sdn Bhd. It was
converted into a public limited company on 28 June 1969 and assumed the name of Perak
Carbide Corporation Bhd. It assumed its present name on 12 October 1981.
MRCB was officially listed on the Main Board of Bursa Malaysia Securities Berhad on 22
March 1971. Its present authorised share capital is RM2,000,000,000 comprising
2,000,000,000 ordinary shares of RM1.00 each (Shares), of which 768,185,868 MRCB
Shares have been issued and fully paid-up.
The principal activity of MRCB is investment holding whilst its subsidiaries and associated
companies are involved in construction and engineering, property development and
management.
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2.1.2
Background information on the JV Company
Pursuant to the JVSA, Panorama Prominent Sdn Bhd (PPSB), a wholly-owned subsidiary of
UM Land, shall be the JV Company. PPSB is a private limited company incorporated in
Malaysia on 16 March 2004 under the Act with an authorised share capital of RM100,000
comprising 100,000 Shares of which 2 Shares have been issued and fully paid-up.
Pursuant to the JVSA and subject to the approval of the Foreign Investment Committee (FIC),
the issued and paid-up capital of the JV Company shall be increased to RM5,000,000 through
subscription of Shares by UM Land and MRCB in the following proportion:
a)
subscription by UM Land of 3,499,998 Shares for a cash consideration of
RM3,499,998; and
b)
subscription by MRCB of 1,500,000 Shares for a cash consideration of RM1,500,000.
The respective shareholdings of UM Land and MRCB in the JV Company upon completion of
the JVSA will be as follows:
Shareholder
No. of Shares
% equity interest
UM Land
3,500,000
70.00
MRCB
1,500,000
30.00
Total
5,000,000
100.00
The share subscription by UM Land will be funded by internally generated funds and/or bank
borrowings.
Under the JVSA, PPSB shall organise itself in a suitable form and structure so as to acquire
Lot L from KLSSB for the development of two (2) blocks of condominiums comprising six
hundred (600) units with car park and recreational facilities.
The JV Company shall be managed in the best interest of UM Land and MRCB without any
undue influence from both shareholders.
UM Land and MRCB shall use their reasonable endeavours and act in the best interest of the
JV Company in relation to the Proposed Acquisition and shall work jointly to ensure that the
proposed development on Lot L is carried out smoothly and efficiently.
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2.2
Proposed Acquisition
The JV Company proposes to acquire Lot L from KLSSB for a cash consideration of RM38
million. The JV Company and UM Land will not assume any liabilities arising from the
Proposed Acquisition.
The purchase consideration of RM38 million was arrived at based on a willing-buyer willingseller basis after taking into consideration the current market value of Lot L. Knight Frank Ooi
& Zaharin Sdn Bhd, an independent firm of valuers, had in its valuation dated 1 April 2004
valued Lot L at a current market value of RM38 million.
The purchase consideration of RM38 million will be paid in the following manner:
Timing of payments
Purchase
consideration
Payment
percentage
RM’000
%
3,800
10
22,800
60
Within thirty (30) days from the date when the SPA
becomes unconditional
3,800
10
Within sixty (60) days from the date when the SPA
becomes unconditional
3,800
10
Within ninety (90) days from the date when the SPA
becomes unconditional
3,800
10
38,000
100
Upon execution of the SPA
Within fourteen (14) days from the date when the SPA
becomes unconditional
Total
The purchase consideration will be funded by proceeds from the share issue referred to in
Section 2.1.2 above, shareholders’ advances and/or bank borrowings.
2.2.1
Background information on KLSSB
KLSSB was incorporated in Malaysia under the Act as a private limited company on 7
November 1994 under the name of Freshway Properties Sdn Bhd. It assumed its present
name on 20 September 1995. The authorised share capital of KLSSB is RM50,000,001
comprising 50,000,000 Shares and 1 special rights redeemable preference share of which
50,000,000 Shares and 1 special rights redeemable preference share have been issued and
fully paid-up. The principal activities of KLSSB are investment holding and property
development.
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2.2.2
Information on Lot L
Pursuant to a concession agreement dated 18 August 1997 and a supplementary agreement
dated 10 March 1999 between the Government of Malaysia, Syarikat Tanah dan Harta Sdn
Bhd (Hartanah) and KLSSB, the Government granted KLSSB the right to develop all that
parcel of railway land currently occupied by Keretapi Tanah Melayu Berhad known as the
“Brickfields Yard” (Development Land) into an integrated transportation terminal cum
commercial development complex. Pursuant to the supplementary agreement, Hartanah shall
procure the transfer of the Development Land by Federal Land Commissioner to KLSSB upon
satisfaction of the terms and conditions contained therein by KLSSB. Pursuant to the
concession agreement, the Government granted to KLSSB the right to manage, operate,
maintain and/or sell all or part of the buildings erected or to be erected on the Development
Land. Lot L is part of the Development Land and is currently registered in the name of Federal
Land Commissioner. KLSSB shall procure Lot L to be registered in its name.
Lot L is located within Kuala Lumpur Sentral and is sited at the south-western corner of Kuala
Lumpur Sentral, close to the junction of Jalan Travers and Jalan Tun Sambanthan.
The north-eastern site boundary of Lot L adjoins a completed two (2) blocks of 400 units
condominium known as Suasana Sentral Condominiums.
Based on the development order issued by Dewan Bandaraya Kuala Lumpur dated 14
February 2004, Lot L has been approved for the proposed development of two blocks of
condominiums comprising six hundred (600) units with car park and recreational facilities.
The development is expected to commence in the third quarter of 2004 with an estimated
development period of three (3) years. The gross development value for Lot L is estimated to
be approximately RM271 million whilst the gross development cost is estimated at RM217
million, yielding a gross profit of RM54 million.
The JV Company intends to fund the development project either through shareholders’
advances and/or bank borrowings.
Further information on Lot L is as follows:
Tenure
Freehold
Category of land use
Building
Area
Approximately 8,250 square metres
Description
Vacant land
Original cost of investment
RM9,488,456
Date of investment
18 August 1997
Audited net book value as at 31
December 2003
RM9,488,456
Market value as at 1 April 2004
RM38,000,000
Valuer
Knight Frank Ooi & Zaharin Sdn Bhd
Pursuant to the security deed dated 2 March 2001 between KLSSB and Malaysian Trustees
Berhad, KLSSB has assigned by way of first legal assignment, inter alia, all of KLSSB’s rights
to any income and benefit deriving from time to time and at any time payable to or accruing to
KLSSB in respect of Lot L to Malaysian Trustees Berhad.
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However, KLSSB shall transfer Lot L to the JV Company free from all encumbrances
(including but not limited to squatters, prohibitory orders, caveats of any nature and adverse
claims and/or any claim against KLSSB and/or encumbrances created by KLSSB) and with
vacant possession pursuant to the SPA.
3.
SALIENT TERMS OF THE JVSA AND SPA
3.1
JVSA
The salient terms of the JVSA include, inter-alia, the following:
a)
the parties agree that they shall at all times respectively endeavour in good faith to
operate and manage the JV Company as an efficient business entity in accordance
with sound commercial principles, with a view to achieving the desired objectives in the
JVSA;
b)
the JVSA is subject to the fulfilment of conditions precedent as set out in Section 8.1
below;
c)
the parties agree that the issued and paid up capital of the JV Company shall be
increased to RM5,000,000 through subscription of shares by UM Land and MRCB in
the following proportion:
i)
subscription by UM Land of 3,499,998 Shares for a cash consideration of
RM3,499,998; and
ii)
subscription by MRCB of 1,500,000 Shares for a cash consideration of
RM1,500,000;
d)
the determination of the overall policy and management of the JV Company shall rest
with the Board of Directors of the JV Company which shall consist of five (5) members
comprising three (3) members representing UM Land and two (2) members
representing MRCB;
e)
for the purpose of regulating and monitoring the conduct of the business of the JV
Company, a Joint-Project Management Committee (JPMC) shall be established. The
JPMC shall consist of five (5) members comprising three (3) members representing
UM Land and two (2) members representing MRCB;
f)
the day-to-day management and operation of the JV Company shall be delegated to,
and vested in, the Vice President-Operations;
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3.2
g)
UM Land and MRCB shall share distributable profits of the JV Company in the form of
dividends in proportion to their respective shareholdings in the JV Company subject to
the recommendation of the Board of Directors of the JV Company and the availability
of sufficient tax credit to frank dividends pursuant to Section 108 of the Income Tax
Act, 1967; and
h)
in the event that any shareholder seeks to dispose of all of its shares in the JV
Company, such shares shall first be offered to the other party at a price to be
determined by the shareholder seeking to dispose all of its shares in the JV Company.
The other party shall have a period of thirty (30) days from the date on which the price
of the shares to be disposed is made known in writing to exercise the right to purchase
the said shares. For the avoidance of doubt, the purchasing party shall only be entitled
to purchase all, and not part, of the shares to be disposed.
SPA
The salient terms of the SPA include, inter-alia, the following:
a)
the JV Company shall purchase Lot L from KLSSB free from all encumbrances
(including but not limited to squatters, prohibitory orders, caveats of any nature and
adverse claims and/or any claim against KLSSB and/or encumbrances created by
KLSSB) and with vacant possession;
b)
the SPA is subject to the fulfilment of the conditions precedent as set out in Section 8.2
below;
c)
an amount of RM3,800,000 representing 10% of the purchase consideration will be
paid upon execution of the SPA and the balance of the purchase consideration will be
paid in the following manner:
d)
i)
an amount of RM22,800,000 representing 60% of the purchase consideration
will be paid within fourteen (14) days from the date the last of the conditions
precedent as set out in Section 8.2 below is fulfilled; and
ii)
an amount of RM11,400,000 representing 30% of the purchase consideration
will be paid in three (3) equal monthly instalment of RM3,800,000 each at an
interval of thirty (30) days whereby the first instalment shall be paid within thirty
(30) days from the date the last of the conditions precedent as set out in
Section 8.2 below is fulfilled; and
vacant possession of Lot L shall be delivered to the JV Company upon payment of the
amount referred to in Section 3.2(c)(i) above.
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4.
RATIONALE FOR THE PROPOSALS
The Proposals:
a)
would allow UM Land Group to expand its property development activities;
b)
would allow the UM Land Group to own development land in a strategic location in
Kuala Lumpur commanding premium prices hence contributing positively to future
earnings of the UM Land Group; and
c)
are in line with UM Land’s business strategy to complement its core business of
township development with niche developments of shorter development period.
5.
FUTURE PROSPECTS
5.1
Economic outlook
In its 2003 Annual Report, Bank Negara Malaysia projected real gross domestic product
(GDP) growth of between 6% to 6.5% in 2004. Growth will mainly be private sector driven, as
the public sector gradually consolidates. The growing consumer and business confidence
since the second quarter of 2003 are expected to mutually reinforce robust consumer
spending and the upturn in private investment activities. Growth in the construction sector is
envisaged to increase at a moderate rate of 1.5% due to lower activity in the civil engineering
sub-sector in both the Government and the private sector. However, activities in the residential
sub-sector is expected to remain strong given that the increase in new housing took place
during the first nine months of 2003, ongoing work on projects under construction, as well as
favourable demand for residential property, encouraged by the incentives granted under the
Government Economic Package (Economic Package) which are effective until the first half of
2004.
The uncertainties in the global economy due to the outbreak of Severe Acute Respiratory
Syndrome (SARS) and the Iraq War in the first half of 2003 was overcome by the mutually
reinforcing effects of strong economic fundamentals, supportive monetary and financial policies
and an economic stimulus package. Growth accelerated in the second half of 2003. All
sectors of the economy expanded in 2003, in response to the strong domestic and external
demand conditions. Despite the outbreak of SARS in the first half of the year, the services
sector recovered rapidly in the second half of 2003 due to stronger domestic demand, as
concerns receded following the global containment of the outbreak, as well as the timely
introduction of the Economic Package to assist the affected industries and to boost consumer
confidence. Stronger trade-related activities also ensured that growth in the services sector
remained resilient.
The economic outlook for 2004 is envisaged to be favourable. The construction sector will
continue to be supported by the property sub-sector, driven by measures and incentives
introduced under the Economic Package to stimulate construction and sales of residential
properties. The construction sector is, therefore, projected to register a marginally stronger
growth of 2.6%.
(Source: Bank Negara Malaysia Annual Report 2003, Economic Report 2003/2004)
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5.2
The property market
5.2.1
Residential sector
The continued demand in selected segments of the property market and higher expected
budgetary allocation for public infrastructure projects is partly on account of renewed interest in
residential housing, supported by incentives given under the Economic Package and lower
interest rates. Under the low interest rate environment, the robust loan demand reflected the
increased demand from both households and businesses. The demand for credit intensified in
the latter part of 2003 as global economic conditions improved, consequently leading to a
strengthening of the growth momentum in Malaysia.
There was a greater number of transactions in the property market, contributed largely by the
residential sector. The upsurge in the number of transactions was a result of increased
activities in the market mainly due to the stamp duty waiver, incentives provided by developers
as well as a preference for new houses.
A better economic outlook and continued improvement of the stock market is anticipated to
result in an increase in launches and higher sales rates in 2004. Market rentals and prices of
the low end condominiums will remain at current levels. Higher occupancy rates of selected
high end condominiums will result in an increase in rental rates and possibly market prices.
(Source: Economic Report 2003/2004, Property Market Report 2002 and The Malaysian
Quarterly 2003, Fourth Quarter 2003, Jones Lang Wootton)
5.2.2
Prospects of Lot L
Lot L is strategically located within Kuala Lumpur Sentral and is sited at the south-western
corner of Kuala Lumpur Sentral, close to the junction of Jalan Travers and Jalan Tun
Sambanthan.
Lot L forms part of Kuala Lumpur Sentral which is a purpose built, fully integrated development
comprising Stesen Sentral, office towers and business suites, hotels, condominiums, a
convention and entertainment centre and an integrated retail centre.
Stesen Sentral is Malaysia’s first integrated transportation hub providing interchange platform
for national inter-city rail systems, inter-urban commuter services and intra-city rail service. The
station is also directly linked to the Kuala Lumpur International Airport via the Express Rail Link
and is equipped with check-in facilities for air travellers.
In addition, the proposed development on Lot L is expected to be favourable due to, inter-alia,
the following factors:

the limited land in the vicinity of Lot L for new high-rise development; and

the encouraging demand (albeit selective) for high-end properties in prime locations
with close proximity to the city centre, easy accessibility, exclusivity, security and good
amenities.
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6.
RISK FACTORS
6.1
Competition
There are several competing developments in Kuala Lumpur which are similar to the proposed
development on Lot L. There can be no assurance that the proposed development on Lot L
will be favoured by prospective buyers. Hence the proposed development will have to be
competitively priced and be able to distinguish itself with a distinct theme and concept from the
other competing developments.
The JV Company will take measures to mitigate this risk such as to continuously monitor and
adjust the development and marketing strategy in response to the economic conditions and
market demand, and to adopt appropriate development concepts to match the requirements of
the target market.
6.2
Delay in completion of projects
Development projects are subject to various regulatory approvals and the completion of
development projects on time is dependent on many external factors, such as uninterrupted
adequate labour supply by the contractors, weather conditions, obtaining the regulatory
approvals as scheduled, securing construction materials in adequate amounts, favourable
credit terms and satisfactory performance of building contractors who are appointed to
complete the development project. There can be no assurance that these factors will not lead
to unforeseen delays in completion of the project. These delays may have a direct impact on
the JV Company’s profitability from the development. Delays in completion of the project
would also result in liquidated ascertained damages which the JV Company would have to
bear.
6.3
Business risk
In undertaking the property development project, the JV Company is subject to certain risks
inherent in the property development and construction industries. These include, inter alia,
labour and building material shortages, increases in the costs of labour and building materials,
changes in general economic business, credit and interest rate conditions, demand for
residential, commercial and industrial properties and changes in the legal and environment
framework within which this industry operates.
Although the JV Company seeks to limit these risks, no assurance can be given that any
change in these factors will not have an adverse impact on the JV Company’s property
development business.
6.4
Inflation and interest rate risk
The short-term concern of the housing market is the rising inflation from factors such as
increased fuel prices, public transportation costs and possible increase in electricity tariffs. The
general concern in respect of these increases to the price of goods and services is that the
government may tighten the monetary policy to control inflation which may mean a hike in
interest rates and thus a slowdown in the recovery of the property sector in the medium term.
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Significant fluctuations in the interest rate may pose an impact on the financial performance of
the JV Company, as some working capital requirements may be met partially by borrowings
and/or internally generated funds. It may to a certain extent affect the saleability of the
development when the financing cost increases significantly.
6.5
Political and economic risk
Adverse developments in political and economic conditions in Malaysia could materially affect
the property industry in the country. Political and economic uncertainties include changes in
both monetary and fiscal policies, risks of war, expropriation, nationalisation, renegotiation or
nullification of existing contracts and methods of taxation. Presently, the outlook of the property
market, especially in the residential sub-sector, is encouraging with the Government’s initiatives
to improve the sector. Nonetheless, no assurance could be given that any changes to the
political and economic conditions would not have any material impact on the JV Company’s
property development business.
6.6
Risk of non-completion of the Proposals
In the event any of the conditions precedent are not fulfilled within six (6) months from the date
of the JVSA and SPA or any other dates which are to be mutually agreed by the parties to the
JVSA and SPA, then the JVSA and SPA shall lapse and cease to have any further force or
effect and thereafter none of the parties shall have any claims against the other.
7.
FINANCIAL EFFECTS
7.1
Share capital
The Proposals will not have any effect on the issued and paid-up share capital of UM Land.
7.2
Substantial shareholders shareholdings
The Proposals will not have any effect on the substantial shareholders’ shareholdings in UM
Land.
7.3
Earnings
The Proposals are not expected to have any material impact on the earnings of UM Land or
the UM Land Group for the financial year ending 31 December 2004 as the development of
Lot L is only expected to commence in the third quarter of 2004. However, the development of
Lot L is expected to contribute positively to the earnings of UM Land in future years.
7.4
NTA
The Proposals will not have any material effect on the NTA per share of UM Land.
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8.
CONDITIONS PRECEDENT
8.1
Proposed Joint Venture
The Proposed Joint Venture is subject to the following:
8.2
a)
the approval of the FIC for the subscription of the Shares in the JV Company by UM
Land and MRCB upon the terms of the JVSA;
b)
the approval of the FIC for the Proposed Acquisition; and
c)
the approval of the shareholders of UM Land (if necessary).
Proposed Acquisition
The Proposed Acquisition is subject to the following:
a)
approval of the shareholders of UM Land at an Extraordinary General Meeting (EGM)
to be convened;
b)
approval of the FIC; and
c)
the conditions precedent in the JVSA are fulfilled or satisfied in accordance with the
terms therein.
The Proposed Joint Venture and the Proposed Acquisition are inter-conditional.
9.
DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS
MRCB is the holding company of KLSSB with 64.38% equity interest in KLSSB as at 31 March
2004. Upon completion of the Proposals, MRCB will hold 30% equity interest in the JV
Company.
Accordingly, pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad the
Proposed Acquisition is deemed a related party transaction. At present, MRCB is not a
substantial shareholder of UM Land.
MRCB do not consider the Proposed Acquisition as a related party transaction by virtue of the
exemption provided under Paragraph 10.08(9)(b) of the Listing Requirements of Bursa
Malaysia Securities Berhad.
Save as disclosed above and insofar as the Directors of UM Land are aware, none of the
Directors and substantial shareholders of UM Land or persons connected to them has any
interest, direct or indirect in the Proposals.
10.
DIRECTORS’ RECOMMENDATION
The Board of Directors of UM Land, after careful deliberations on the Proposals, is of the
opinion that the Proposals are fair and reasonable and in the best interest of the Company and
its shareholders.
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11.
RELATED PARTY TRANSACTION
The Proposed Acquisition is deemed a related party transaction pursuant to the Listing
Requirements of Bursa Malaysia Securities Berhad. However, UM Land intends to seek a
waiver from complying with Paragraph 10.08 of the Listing Requirements of Bursa Malaysia
Securities Berhad.
12.
EXPECTED TIME FRAME FOR COMPLETION OF THE PROPOSALS
Barring any unforeseen circumstances, and subject to the approvals of the relevant authorities
and shareholders of the Company, the Proposals are expected to be completed within six (6)
months from the date of this announcement.
13.
APPLICATION TO THE FIC
It is the intention of UM Land to make the necessary applications on the Proposals to the FIC
within fourteen (14) days from the date of this announcement.
14.
DOCUMENTS FOR INSPECTION
The JVSA, SPA and Knight Frank Ooi & Zaharin Sdn Bhd’s valuation report on Lot L are
available for inspection at UM Land’s registered office at Suite 1.1, 1st Floor, Kompleks
Antarabangsa, Jalan Sultan Ismail, 50250 Kuala Lumpur between 9.00 a.m. and 5.00 p.m. on
Mondays to Fridays (except on public holidays), for the time being, for a period of three (3)
months from the date of this announcement.
This announcement is dated 28 April 2004.
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