KUALA LUMPUR (April 1): Gadang Holdings Bhd has proposed to vary certain terms of its joint venture agreement (JVA) involving a RM1.8 billion integrated project being developed on its land in Johor Bahru, chief of which is a reduction to its entitlement from the project from a maximum of RM324 million to RM250 million. 

Up until March 21 this year, the project's developer, Capital City Property Sdn Bhd (CCPSB), had paid RM149.79 million to Gadang's wholly owned Achwell Property Sdn Bhd (APSB), which owns the land, for the settlement of the initial entitlement sum. Under the proposed variations, the revised remaining entitlement will be RM100.21 million, which will now be satisfied via the contra of 408 identified, completed retail units that have not been sold (identified retail units), Gadang announced in a stock exchange filing. 

In return, APSB agrees to transfer the legal and beneficial ownership of the land to CCPSB, who intends to use it to raise additional financing to complete the remainder of the project, and to fund the operations of its retail component. Upon the first drawdown of the facility, CCPSB will pay APSB a covenanted sum of between RM20 million and RM35 million, depending on the amount of CCPSB's approved loan. On receipt of the covenanted sum, APSB will then select a number of the identified retail units with a total corresponding value to the covenanted sum, and return them to CCPSB.

In addition, APSB will be granted a put option which gives it the right to sell and require CCPSB to buy any unsold units during a stipulated option period, at a price that will enable APSB to realise a total cash of RM312 million at the end of the period. At the same time, CCPSB will get a call option that gives it the right to buy and require APSB to sell to it the remaining units during the option period at the same option purchase price.

APSB, who inked the original JVA with CCPSB in December 2013, on Friday entered into a conditional settlement agreement, a conditional put option agreement, and a conditional call option agreement, to incorporate the proposed variations. 

Gadang will be calling for an extraordinary general meeting to seek its shareholders' approval for the proposed variations.

Gadang said the proposed variations stemmed from a request from CCPSB, who is responsible for the overall development, construction and funding of the project, to transfer the land to CCPSB to raise additional financing to complete the project, the progress of which has been affected by the slowdown in the local property market. 

Only the retail component is completed to date, while the completion of the entire project is expected to be delayed and completed only after the original due date of Feb 25, 2020, it said.

The weak demand and the oversupply of office has also led to the revision of part of the project, in particular the cutting out of three office towers. The original two 15-storey hotel suites have also been reduced to one 16-storey tower, with the addition of one 18-storey serviced suites tower, and three 15-storey serviced apartments. 

Gadang said the settlement agreement and the contra of the identified retail units may lead the group to enjoy potential future capital appreciation, as the value of the identified retail units in the contra is about 40% lower than the current transacted price of the units.

"However, in the event APSB is unable to sell the identified retail units to third party purchasers, the option agreements provide APSB with the opportunity to realise its investment in the identified retail units at the option purchase price. Further, the settlement agreement is also conditional upon CWL (Capital World Ltd), the ultimate holding company of CCPSB providing a letter of guarantee to APSB to guarantee the performance and payment of the option purchase price by CCPSB under the option agreements," it added.

If approved, the proposed variations are expected to be implemented by the third quarter of this year. — theedgemarkets.com

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