Ho Hup to start work on Bukit Jalil land

PETALING JAYA (July 6): Ho Hup Construction Co Bhd will start developing a 5.9-acre (2.4ha) plot in Bukit Jalil soon as part of its plan to rectify its financial position.

The settlement of a two-year dispute with Malton Bhd’s unit Pioneer Haven Sdn Bhd (PHSB) has enabled Ho Hup’s 70%-owned subsidiary Bukit Jalil Development Sdn Bhd (BJD) to regain the sole development rights to a 10-acre tract out of the 60 acres of prime land in Bukit Jalil.

Ho Hup director Derek Wong said the company has had a soft launch for the 5.9-acre project, which will consist of 63 units of three- to fi ve-storey shoplots, with prices ranging from RM2.5 million to RM6 million per unit.

The development of the land known as “Parcel A” will give the financially-distressed company a new lease of life while it waits for the joint venture (JV) project with PHSB to take off.

The 5.9 acres is part of the 10- acres next to the 50-acre plot that will be jointly developed by BJD and PHSB. BJD owns the entire 60-acre tract. “Our advisors believe that Parcel A will give us a good chance to regularise our position,” Wong told The Edge Financial Daily in an interview yesterday.

Previous master plan on PJD's 60 acres in Bukit Jalil

Under the earlier joint development agreement (JDA), BJD and PHSB were supposed to jointly develop the entire 60 acres owned by BJD. However, some shareholders could not agree to terms of the JDA that was signed by PHSB and Ho Hup’s previous managemnt.

After several legal tussles, Ho Hup on Tuesday fi nally called a truce with Malton by entering into a supplemental agreement to tweak the original JDA, thereby enabling BJD to develop the 10-acre plot on its own, among other things. According to Wong, both parties have also agreed to drop their lawsuits.

With the settlement, BJD will now be entitled to 18% instead of 17% of the estimated gross development value (GDV) of the JV land of 50 acres, subject to a minimum of RM220 million.

“We think this [settlement] is a good deal for Ho Hup because we can immediately launch Parcel A to regularise our fi nances, without having to wait for the 18% entitlement that will be coming in over time.

We believe sales to be generated from Parcel A will be enough to help Ho Hup regularise itself,” said Wong. “If you take the profits generated from the 10-acre parcel that we develop on our own, coupled with the project with Malton, then blend it together, we are getting returns of more than 20%, versus the 17% earlier.

This we think is fair based on today’s market trend,” he added. Wong said Ho Hup will submit a new restructuring scheme, which will include the development of Parcel A, to Bursa Malaysia by end of this month. “The launch of Parcel A is very crucial as we can show Bursa we have signed sale and purchase (S&P) agreements and that the project can generate profits over the next few years.

Bursa wants us to show that we can clear our accumulated losses over two years,” he said. Wong claims that Ho Hup has sufficient working capital to take on the development of the 5.9-acre land, especially after PHSB agreed to pay for and on behalf of BJD the servicing of monthly interest, which amounts to about RM800,000 a month, to its creditor Insas Credit and Leasing Sdn Bhd. He said PHSB will also assist BJD to secure financing of up to RM20 million for the development of the entire 10-acre tract.

“The land is free of encumbrances. RM20 million will be a good figure to help us kickstart the development,” he added. Ho Hup had accumulated losses of RM146.61 million as at Dec 31, 2011. For the financial year 2011, Ho Hup narrowed its net loss to RM10.82 million from RM13.64 million a year ago.

Wong said the settlement with PHSB was agreed upon after taking into consideration a few factors including meeting the deadline to come up with a regularisation plan and its debt obligations. “The time extension for [regularisation plan] submission expires on June 30, which was last week.

The board had to take that into consideration,” he explained. Meanwhile, he noted that its loan with Insas comes due in about two weeks and the settlement therefore works in its favour as PHSB has agreed to redeem a secured loan of RM75 million by Dec 31, 2012. “This means Ho Hup will be almost debt free in terms of borrowings come Dec 31. Ho Hup has less than RM10 million unsecured loans.

End of this year, we would have settled with our secured creditors,” said Wong. He said in the JDA previously, BJD did not have any payment terms and had no say in the development of the Bukit Jalil JV land. “Now we do have certain say via a project committee, which consists of our personnel to oversee the project.

Malton has six months to redo the master plan for the 50-acre plot and another six months to launch. It is fair to say Ho Hup will see income from the JV as early as the second quarter of 2013,” he added. Wong said after two years at loggerheads with Malton, it’s time to move on.

“We want to close the chapter and move forward. Ho Hup has other opportunities to seize and we don’t want to miss the opportunities as we leave this [issue with PHSB] hanging. “On the construction side, we are working to secure some jobs in the Middle East,” he said.

Separately, he said Ho Hup is still eyeing the 30% equity interest in BJD held by Zen Courts Sdn Bhd and is waiting for its independent valuer to determine the value of the stake.

This article appeared in The Edge Financial Daily July 6, 2012.

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