SCIB unit enters conditional co-development deal for RM83.2 mil Penampang condominium project

PETALING JAYA (Aug 7): Sarawak Consolidated Industries Bhd (SCIB) said its wholly owned subsidiary, SCIB Ecobuild Sdn Bhd (SCIBE), has entered into a conditional co-development agreement with Inland World Sdn Bhd (IWSB) to jointly undertake a residential development in Penampang, Sabah, with an estimated gross development value (GDV) of RM83.19 million.

It said in a Bursa Malaysia filing on Friday (Aug 7) that the project, known as Dimpoukon Residence, will be developed on two land parcels measuring a combined 1.651 acres and comprise two nine-storey condominium blocks with 144 residential units and ground-floor parking facilities.

Based on SCIB's preliminary feasibility study, the project has an estimated gross development cost (GDC) of RM75.26 million and an estimated development profit of RM7.93 million, equivalent to 9.53% of the projected GDV. SCIB said the estimates remain preliminary and are subject to changes arising from, among others, final construction costs, financing costs, sales performance, market conditions, regulatory requirements and project implementation.

Subject to the fulfilment of the conditions precedent and the timely receipt of the relevant approvals, the project is expected to be completed by February 2029. SCIB said IWSB has represented that it had obtained development plan and building plan approvals from the relevant local authorities on June 28, 2023.

SCIBE to lead project execution

Under the agreement, SCIBE will lead the project's implementation, management and execution, while IWSB will remain the registered and licensed developer.

Net development profit will be allocated on an 80:20 basis between SCIBE and IWSB, respectively.

However, SCIBE will assume principal responsibility for funding, implementing and completing the project, including servicing and redeeming the bridging loan and meeting funding shortfalls or cost overruns. IWSB will not bear project losses, funding shortfalls, cost overruns or additional project costs unless they arise directly from its breach, default or negligence.

SCIBE is also to reimburse IWSB approximately RM4.13 million for project-related costs incurred before its participation. The reimbursement remains subject to verification of supporting documents and SCIBE's legal, financial and technical due diligence. Under the agreement, 50% of the amount is scheduled to be paid within seven days of execution, with the balance due within seven days after the conditions precedent are fulfilled. If SCIBE terminates the agreement because the conditions precedent are not fulfilled or waived within the stipulated period, recovery of any amount paid would depend on IWSB's ability to refund it.

Funding and execution risks

The project is expected to be funded through the existing bridging loan granted to IWSB, internally generated funds and, where required, additional financing facilities. The project lands are charged as security for the bridging loan, which SCIBE will be responsible for servicing, repaying and fully redeeming from the date the conditions precedent are fulfilled.

SCIB said the project remains subject to financing, cost-overrun, sales and regulatory risks. In particular, one parcel is Native Title land that must be converted to Country Lease, and the two parcels must be amalgamated. The project also depends on the continuing validity of IWSB's 2023 joint venture agreement with the landowners.

Supports property development expansion

SCIB said the agreement supports its planned expansion into property development following the discontinuation of its manufacturing business by leveraging its existing engineering, procurement, construction and commissioning capabilities.

According to the company, the project is expected to contribute positively to the group's financial performance, diversify its revenue and earnings streams, and strengthen its residential property development capabilities, subject to the successful implementation and completion of the project.

The agreement is not expected to have a material effect on the group's earnings or net assets for the financial year ending Dec 31, 2026, although gearing may increase if additional borrowings are obtained. Subject to the successful implementation and completion of the project, the agreement is expected to contribute positively to SCIB's future earnings and net assets.

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