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Maybank roped in for Penang megaproject

KUALA LUMPUR (Aug 28): Consortium Zenith Construction Sdn Bhd (CZC) said it had overcome a hurdle in the contentious Penang Major Roads and Third Link development as Malayan Banking Bhd (Maybank) had been roped in to provide financing for part of the project.

This came as portions of the reclaimed land in the north-east of Penang island, which the state government will hand over to CZC as part-payment for the entire development, are expected to be ready this month, said CZC chairman Tan Sri Azmi Khalid yesterday.

On Aug 2, CZC inked a master agreement with the Penang government for the development, which spans four phases comprising three highways and one undersea tunnel between Penang island and the mainland (see table).

In exchange, the state government is paying CZC via three plots of reclaimed land measuring over 110 acres (44.52ha) in total as well as a minimum of a 30-year concession for the undersea tunnel.

“The Penang state government is committed to proceeding with the project with CZC as the main contractor,” said Azmi.

CZC is 84.06% owned by Zenith Construction Sdn Bhd, which is controlled by CZC senior executive director Datuk Zarul Ahmad Mohd Zulkifli. Other shareholders include Vertice Bhd (13.21%) and G7 contractor consortium Juteras Sdn Bhd (0.75%).

Azmi said two plots measuring over 50 acres that are attached to the island will be handed over by the state government.

Maybank has been roped in to find buyers for the two land plots and provide financing for the buyers. This will allow the land owner, CZC, to fund Packages 1 and 2 of the development.

At an estimated price of RM1,300 per sq ft, the two plots have a total market value of over RM2.83 billion.

Maybank has already found a buyer for one plot measuring 29.1 acres and is set to sign the sales and purchase agreement, said Azmi. He did not reveal the name of the buyer, but mentioned that it is a local consortium.

Meanwhile, Maybank will also provide financing for Package 2’s RM220 million land acquisition cost and RM815 million construction work cost to the project manager of the package, Buildmarque Construction Sdn Bhd.

Buildmarque is a joint venture between Vertice and Vizione Holdings Bhd. “Vertice has board control over Buildmarque,” said Azmi.

“The financing for land acquisition and construction is at advanced stage of approval,” he said, and suggested that financing for the construction could come in the form of revolving credit of under RM300 million.

As it stands, Maybank would gain from the financing for the Package 2 development and commissions from the sale of the two land plots. Buildmarque will commence construction works for Package 2 in October. CZC also expects Package 1 to commence in October 2020, although the construction agreement has not been firmed up.

China Railway Construction Corp Ltd has also been appointed the engineering, procurement and construction contractor for the entire development.

There will be local participation, explained Azmi, and the local contractor tender process for Package 2 is expected to be completed by year end.

Further delay, cost higher than initial estimate of RM6.3b

On the other hand, Package 4 — the undersea tunnel — will only commence construction in 2026, as opposed to previous reports that work could start in 2023.

It is understood that the third reclaimed land plot to be received by CZC, spanning over 60 acres, will be completed by 2026.

Eastern & Oriental Bhd is the contractor that is reclaiming the land, which is part of its larger, 760-acre man-made island project Seri Tanjung Pinang Phase 2, which commenced work in 2016.

Meanwhile, it is understood that the land acquisition cost for CZC’s three highways and the undersea tunnel is expected to be higher than estimated, meaning that the overall project cost will be higher than the RM6.34 billion reported previously.

The initial cost of the project comprised an overall construction cost of RM5.49 billion, RM305 million for feasibility studies and designs, as well as RM546 million for land acquisition.

Acquisition of land falls under the role of the state government. However, this has seen some delays — as seen in the higher land acquisition cost for Package 2.

From the initial estimate of RM140 million in 2012, the final land cost was RM220 million — representing an RM80 million or 57% increase — when the land was gazetted under “for acquisition” under Section 8 of the Land Acquisition Act.

It is understood that the cost to acquire land for the remainder of the project will also be higher than the initial estimate of RM406 million, although CZC was unable to confirm the quantum.

The additional land cost will likely be satisfied via reclaimed land as well — meaning CZC is expecting more than 110 acres as payment for the overall development.

“Land acquisition is made by the state government. We provide the initial capital and they will repay us via land swaps. We do not take profit from land acquisition,” Azmi clarified.

This article first appeared in The Edge Financial Daily, on Aug 28, 2019.

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