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City & Country: Cover Story - K P Kuok to the rescue

MY PLANE lands at the Kota Kinabalu International Airport just as dusk is falling and as I wait for my ride, a constant stream of taxis whisks passengers away to their destinations.

This is my second trip to Sabah’s capital, my first having been about a decade ago, and much has changed in this blossoming city.

It’s apparent that development has come to KK with new malls, hotels and condominiums coming up everywhere in the city, which also seems to have grown in size. The width of the roads, however, has not kept pace with the growth. I later find out from the locals that traffic congestion has become a way of life for them and that many roads in the outlying areas are still not paved with tarmac, which explains the high number of four-wheel drives spotted during the trip.

In spite of the lack of infrastructure in the remote parts of the state and the incursion last year by an armed group of Filipinos, the pristine, postcard perfect islands of Sabah continue to draw visitors. Last year, the state saw a double-digit increase in tourist arrivals.

According to figures on the Sabah tourism board’s website, a total of 2.88 million visitors were recorded between January and November last year. This marks an increase of 17.2% from the same period in the previous year. In 2012, the state recorded tourism revenue of RM5.17 billion. In fact, the Kota Kinabalu International Airport is the second busiest airport in Malaysia after the Kuala Lumpur International Airport.

There is no equivalent site. PacifiCity faces the Likas bay and has sweeping views of nearby islands, the wetlands and Mount Kinabalu. — Wheeler

The state’s property market has also picked up since the 2007/08 global financial crisis. According to The Edge-Rahim & Co Kota Kinabalu Property Housing Monitor, a 1-storey terraced house in Taman Sri Kepayan that was priced at RM180,000 in 1Q2008 was in the market for RM300,000 in 4Q2013. Similarly, a unit at The Peak condominium is now on the market for almost double the price it commanded six years ago (1Q2008: RM280,000, 4Q2013: RM530,000). Yields have also caught up with rental rates in townships such as Ujana Kingfisher and Taman Jindo almost doubling.

Certainly, the state’s hidden potential has not gone unnoticed because developers such as S P Setia Bhd and Tropicana Corp Bhd have already launched projects there. Among the farsighted individuals who hope to tap the growing wealth of Sabah is K P Kuok, a member of Malaysian “Sugar King” Robert Kuok’s clan.

He is the managing director of Pacific Sanctuary Holdings Sdn Bhd (PSH), which has about 120 acres — over 80 in Kota Belud, 23 in Lok Kawi Height and 12 in Kokol — in the state for residential and hospitality purposes.

Kuok also has about 167 acres of golf course land in Fraser’s Hill in Pahang, which was acquired in 2008. However, he has no immediate plans for it yet. “We want to finish our two projects first,” he says, adding that he hopes to purchase more land in the future.

The two projects, which had been abandoned by their former developers, are the 25-acre PacifiCity in Likas that has an estimated gross development value (GDV) of RM4 billion, and Kudat Riveria, a beachfront villa development in the northeastern shores of Sabah, right at the tip of Borneo.

PacifiCity

Kuok has been calling the state home since 2011. He was previously the CEO of ACE Jerneh Insurance Bhd. PSH, formerly known as Ideal Prestige Sdn Bhd, was renamed upon its acquisition in 2011.

Its board of directors includes Christopher Boyd, the executive chairman of CBRE Malaysia, and Ong Shau Soo, who is a commercial banker with over 20 years of experience.

Kuok’s various visits to Jerneh’s branch offices over the last 40 years culminated in such a love for the state and its people that he decided to retire in KK.

His foray into property development in KK started 20 years ago, at around the same time he started building his retirement home.

“It was by sheer chance. I was visiting a nearby site with a friend and I mentioned that it was such a great location. He turned and asked me if I was interested. And the rest, as they say, is history,” Kuok quips.

That is the site of PSH’s first project, PacifiCity. A different party had purchased the land in 1995 to build KK Mega Mall on it, but the plan did not materialise. In 1997, the parcel was sold to another party, which launched the project. However, the 1997/98 Asian financial crisis took a toll on the developer, which declared bankruptcy soon after.

In 2006, just when the investors thought there was light at the end of the tunnel, it was extinguished when the 50:50 joint-venture company that took over the project abandoned it for a second time after a falling-out between the two parties. Sadly, less than 10% of the development had been completed at the time.

“As Christians, we don’t believe in the word ‘jinx’. That was all the result of bad planning and mismanagement,” remarks Kuok.

Where rescued projects are concerned, a lot of work has to be done before a new development can be launched. In PacifiCity’s case, it took three years to sort out all the technical, financial and legal issues.

“I recall doing most of the filings in 2008 with the help of only my secretary,” says Kuok, chuckling at the memory. He adds that they had to deal with various parties, such as creditors, subcontractors, suppliers, house owners as well as the landowner.

The integrated PacifiCity has an estimated gross development value of RM4 billion and is located on a 25-acre site in Likas. Its landowner is the Sabah Civil Service and Recreational Council.

“There is no equivalent site. PacifiCity faces the Likas bay and has sweeping views of nearby islands, the wetlands and Mount Kinabalu,” says Jonathan Wheeler, PSH’s general manager and Kuok’s son-in-law.

Wheeler had previously worked in Singapore in one of the Kuok family’s companies — Wilmar International Ltd — as a biofuel trader.

The main contractor for the shopping mall Pacific Parade in PacifiCity is MCC Overseas (M) Sdn Bhd, a wholly-owned subsidiary of MCC Overseas Ltd, an international engineering service provider that is controlled by Fortune 500 company Metallurgical Corp of China Ltd (MCC). It will be MCC’s first project in Sabah.

When completed, PacifiCity is slated to be the largest integrated residential, commercial, retail and entertainment hub in Sabah with a total of 11 components.

The first wave of completions is due in 2015 and will comprise Pacific Parade (with a net lettable area of 500,000 sq ft), Pacific Enterprise 1&2 (about 263,000 sq ft of Grade A office suites), Pacific Bazaar (with a gross floor area of 305,000 sq ft) and Pacific Tower (with 56,000 sq ft of office space).

Next in line are Pacific Heights (estimated completion by 1Q2016), Pacific Orchard & Grove (estimated completion by 3Q2016) and Pacific Sanctuary (estimated completion by 2Q2017).

The last components to be completed will be a block of serviced residences named Pacific Suites (222 units), a luxury hotel (400 rooms) and Pacific Place (a high-end mall with a medical centre). The upscale mall will have an NLA of 200,000 while the medical centre will be 120,000 sq ft in size. According to Wheeler, the entire development will be completed by 2020.

The group is retaining about half the 11 components — Pacific Parade (estimated completion in 1Q2015), Pacific Place (estimated completion in 2Q2018), Pacific Tower (estimated completion in 2Q2015), two unnamed tower blocks that will feature a luxury hotel with 400 rooms (estimated completion in 1Q2015) and a 200-room, four-star hotel-cum-office block (estimated completion in 4Q2017) — for recurring income.

Pacific Bazaar and the first residential block have been launched and so far, 85% of the former’s boutique retail lots and 60% of the latter have been sold.

The leasing of Pacific Parade starts in April and is being led by an experienced team who had worked with Suria KLCC and leased malls in KL, such as The Gardens in Mid Valley City.

Key anchor tenants have been secured for the mall, including Everrise Department Store, and more are in the final stages of negotiations. PSH is also in talks with a four to five-star international hotel brand to take up the 400-room luxury hospitality component of the development. There are plans too to bring a branded Singapore club into PacifiCity, although Wheeler will not reveal the name.

According to Max Sylver Sintia, branch manager of Rahim & Co Sabah, PacifiCity’s site is in one of the more established and prime residential areas in KK with other upcoming residential developments consisting mostly of high-end condominiums, such as The Peak, Peak Vista and Peak Soho, Bayview Residences (under construction) and Bay 21 (under construction), and Bayshore Condominium Phase 3.

Located directly opposite PacifiCity is the Sabah Trade Centre, Likas Square retail and serviced apartments and Wisma Perindustrian. Further south of the development is the Likas Sports Complex and to its southwest is the Likas Bird Sanctuary.

Be that as it may, Chen Yun Ngen, director of JS Valuers Property Consultants (E.M.) Sdn Bhd, voices concern over an oversupply of retail space and condominiums in KK. “Based on information available to us, the overall selling price of retail space in PacifiCity is on the high side.”

Clockwise from left: PacifiCity sits on a 25-acre site in Likas and has a GDV of RM4 billion; a component of the project; Kudat Riviera; and a villa from the project

Kudat Riviera

Kudat Riviera is PSH’s second rescued project in Sabah. Sitting along an 11km stretch of tropical coastline, the project was originally developed by Phil Dobson, managing director of Exquisite Borneo Villas and Touchdown World Travel Group. It was envisioned as an innovative and environmentally friendly yet luxurious villa destination in the heart of Asia.

The first phase of Kudat Riviera will feature only 33 luxury villa estates with sizes ranging from 0.5 acre to five acres. Phase 2 will comprise an upscale resort hotel, work on which starts this year, says Kuok.

PSH chose to use the original plan for Phase 1, which comprises 1,200 to 6,000 sq ft villas with three to four bedrooms and dining, entertainment and living areas. The prices of the villa estates, which are sold out, range from US$200,000 to US$5 million.

There are three different designs for the villas, which are exquisitely appointed — beach, private cove and hill. They are built with natural materials and boast bamboo furnishings and thatched grass roofs.

When the project stalled under the initial developer, representatives of the buyers who had heard of Kuok’s involvement in PacifiCity approached him to rescue it. The villas were in different stages of completion when Kuok decided to take up the challenge of completing the development.

“We had to change some of the elements, including the support columns and woodwork,” he says, adding that most of the villas’ original buyers were not locals.

PSH has completed Phase 1 of the development. However, it has no plans to manage the development itself, opting instead to hire another party to handle the maintenance of the villas upon their completion. This will free it to plan Phase 2, which Kuok says has an estimated GDV in excess of RM50 million.

“We are planning two separate brands for Phase 2, one of which will be Green Village Resorts,” says Kuok. The other will be a JV with an international hospitality group and hence will not be run by the same party that manages the Kudat Riviera villas.

PSH starts work on Phase 2 this year and expects to complete the development by 2017.

For many years, rumours were rife that international movie star Jackie Chan had purchased a property in Kudat Riviera, which is about a three-hour drive from KK.

When asked if the rumours were true. Kuok lets out a hearty laugh. “I get asked this question so often! I have no idea where or how these rumours came about, but let’s put them to rest now, shall we? Jackie Chan does not own a property here!”

According to JS Valuers’ Chen, the tourism aspect of Kudat is not established in Sabah yet. “Kudat with its beautiful white sandy beaches is full of tourism potential, although the roads to these beaches are still gravel.”

‘Sabah may rank among the top three richest states in 15 years’

With his investments in Sabah, it is obvious that Kuok sees a lot of growth potential in the state. Although it is one of the poorer states in the country at present, he believes it can be among the top three in the next 15 years.

He highlights the fact that the state has 70% of Malaysia’s oil and gas reserves, 35% of its planted oil palm acreage and the highest growth of tourist arrivals. “These three sectors can buffer the state against any negative impact of a national slowdown,” he says.

Sabah also has the potential to grow as a redistribution centre for East Asia due to its strategic location and fresh produce, which is now much sought-after in the region, he adds.

According to Kuok, Japanese restaurants recently started sourcing their seafood from Sabah due to the quality and freshness of its produce.

The tourism sector is also booming as hoteliers try to keep up with demand. In fact, the shortage of four to five-star hotels in KK is reflected in the escalating room prices.

“Even backpacker hotels are now charging the rates of budget hotels in KK,” says Kuok, adding that Shangri-la Tanjung Aru and Shangri-la Dalit Bay are among the top performers in the Shangri-la chain of hotels.

PSH hopes to meet the increasing need for Grade A office space due to an influx of foreign companies, especially in the oil and gas and consultancy areas, with PacifiCity, says Wheeler.

He cites oil and gas major Shell’s experience after deciding to relocate its regional office to KK. “Shell spent many months trying to acquire suitable office space but eventually ended up commissioning a purpose-built office block.”

Asked about Kuok’s involvement in KK, JS Valuers’ Chen says, “If he is as capable as his uncle, we believe his ventures here will contribute to Sabah’s development as a whole, particularly in property, tourism and hospitality.”

He adds that it is a relief that a “big player” is reviving the abandoned projects.

According to CH Williams Talhar and Wong (WTW), demand for office space in KK is expected to grow with prices forecast to “edge upwards” due to expansion among financial institutions, oil and gas companies and local government agencies. The overall occupancy rate in 1H2013 was 91.3% with selected office buildings charging monthly rents (inclusive of service charges) of RM1.40 to RM3 psf. However, WTW does not believe yields will catch up with the increase in prices soon.

Five-star resorts in the state, especially those with established brand names and a global network, are enjoying good occupancy and room rates, says WTW, adding that due to more direct flights to and from KK, the government’s continued efforts to promote Sabah’s tourism sector as well as the limited supply of upscale and branded resorts, those catering to demand now will maintain their strong position. Among the hotels under construction now are Hilton Kota Kinabalu (Asia City) and Mariott (KK City Waterfront).


Rescuing projects

When Pacific Sanctuary Holdings Sdn Bhd (PSH) was set up, it did not think it would kick-start its first foray into property development with the rescue of abandoned projects.

“But when we reflect upon our previous experiences and projects, they appear to be mainly resuscitations — the Lazarus syndrome!” says its managing director K P Kuok.

Project rescue requires different skill sets from the engineers, quantity surveyors, architects, builders, lawyers and accountants who pool their know-how for a common purpose, says Kuok, adding that they need expertise in three key areas: technical, financial and legal.

If the foundations and structure are already up, they would have to be analysed to see if they are still usable because demolition and pile extraction are extremely expensive. Forensic investigations and engineering analysis have to determine the ability and suitability of existing works. These investigations need to be undertaken by specialists.

Then, says Kuok, you have to determine if you can add value to the project. If you cannot, then its commercial viability comes into question, he adds.

The financials of the project have to be stringently analysed to determine its viability with liabilities including outstanding payments to banks, suppliers, purchasers, contractors and other creditors.

According to Kuok, there is a great deal of hidden or non-disclosed liabilities in rescued projects, often times deliberately suppressed. You have to make accurate contingency allowances for these, he says, adding that a project that has been abandoned for a few years will have huge interest bills and law against discrimination liabilities.

Lastly, there will be a mountain of legal cases to settle and a huge volume of contracts to analyse and understand before a clear picture of the liabilities and viability of the project emerges. Negotiations to settle cases and disputes can take years and sometimes the entire viability can be torpedoed by a single disgruntled claimant or creditor unless the project is already in the hands of the official receiver, says Kuok.

“There is great satisfaction in seeing an eyesore obliterated from the communal landscape. Finishing a once abandoned project is really a great community service,” says Kuok, adding that each project rescue is different, each providing a steep learning curve to the would-be rescuer.

This sense of satisfaction spurred PSH on to work with Bintai Kindenko, part of the Bursa Malaysia-listed Bintai Kinden Bhd to form Bintai Borneo Sdn Bhd — a specialist project management company that will be consult on the rescue of abandoned projects and provide project management services for greenfield starts.

“We felt that there was a need for such specialist skills, so with our combined human resources in this very specialised area, we can take on many more new as well as abandoned projects,” says Kuok.

 

From insurance to property development

For someone who was born into one of the richest families in Malaysia, Kuok Khoon-Ping, the nephew of Robert Kuok, is surprisingly laidback.  

Kuok, who prefers to go by his initials K P, is clad in a white formal top and slacks when we meet on a sunny morning in Kota Kinabalu. The interview takes place in one of the showrooms of his new development in Sabah, PacifiCity.

Kuok’s business card is a projection of his minimalist style — black and white and printed only on one side sans position, company logo, elaborate titles or education background.

According to those close to him, Kuok is a relaxed and easygoing person, but this can change quickly if he finds out that his trust has been compromised.

Like many Malaysians, Kuok is a foodie who likes nothing better than to take his family on long road trips in search of that perfect plate of local goodness.

He values the simple things in life and the anonymity he and his family enjoy in Sabah. So, it was no surprise that he requested not to be photographed for the story. “I think it is an unnecessary security risk,” he explains.

In an exclusive interview with City & Country, Kuok, 66, talks about his professional journey through the years and how it eventually led him to the land below the wind.

Upon completing high school, Kuok was sponsored by the Kuok group to study insurance in the UK. “So I went to the UK. Little did I know that they [the family] had plans to start an insurance company then,” he says.

After graduating, Kuok worked in MIC Insurance for a brief period before receiving the call to return home in 1973. So he dutifully resigned, packed his bags and headed back to Malaysia.

He was tasked with heading ACE Jerneh Insurance Bhd, an insurance company with a market capitalisation of RM1 million. “In those early days, we only had a 10-man team in our office in the bustling Pudu area,” Kuok recalls.

He was CEO of the company for over 20 years, growing it into the billion-dollar enterprise it is now.

ACE Group is one of the world’s largest providers of commercial property and casualty insurance and reinsurance with US$87 billion in assets and more than US$20 billion in gross written premiums in 2011. Its core operating companies are rated AA- for financial strength by Standard & Poor’s and A+ by A.M. Best.

Eventually, Kuok decided he needed a break and exited the group in the early 1990s. Ironically, his decision to take a breather did not quite pan out because he bought into an insurance company in the Philippines in 1994. He was still in his forties then.

In the undertaking, Kuok entered into a 50:50 joint venture with India’s Shriram Group, which is still running the business in the Philippines.

But why move into the insurance industry again and why in the Philippines?

“It was a good opportunity and there was a lot of potential in the market. Also, it [insurance] was something I knew very well,” Kuok says, adding that the capital requirement in the Philippines back then was very low compared to that of other countries in the region.

Kuok still holds 50% equity interest in Monarch Insurance Co Inc, a 50-year-old Philippine Stock Exchange-registered and Insurance Commission-licensed non-life insurance company. However, he is not involved in the day-to-day running of the company, which has a market cap of PHP136 million now.

Around the same time, Kuok embarked on building his dream retirement home in Kota Kinabalu on a plot of land he had purchased during his days at ACE Jerneh.

“I liaised directly with my architects and contractors. One can say that I was a very hands-on owner. Sometimes, I was even guilty of micromanaging!” he laughs.

While planning the construction of his home, Kuok discovered a passion for buildings, which eventually led him away from full-time retirement and into property development.

This becomes evident during our tour of PacifiCity when Kuok turns to me and said earnestly, “This is every boy’s dream. When we were young, we were playing with building blocks. Now, we are working on the real thing!”

While rescuing abandoned projects is no child’s play, Kuok’s business experience, tenacity and passion will surely stand PSH in good stead.


This article first appeared in The Edge Malaysia Weekly, on April 7, 2014.

 

 

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