Mah Sing's JV development of Pekeliling stalled

KUALA LUMPUR (Dec 14): Mah Sing Bhd has been informed by Asie Sdn Bhd that the joint venture agreement (JVA) for the development of a tract of land in Jalan Tun Razak has lapsed following the failure to meet an outstanding condition.

The property developer announced to Bursa Malaysia that Asie and its subsidiary Usaha Nusantara Sdn Bhd, through their solicitors, have taken the position that the JVA has lapsed and is of no effect from Dec 2, 2011.

However, Mah Sing views it differently. "Mah Sing takes a different position and maintains that the JVA has not lapsed. Mah Sing's solicitors have today [on Tuesday] issued a letter to Asie and Nusantara's solicitors maintaining this position," the company told Bursa Malaysia in the same announcement.

A deposit comprising 10% of the total cash payment payable to Nusantara, amounting to RM6.4 million with interest, was refunded to Mah Sing. However, Mah Sing returned the money, saying it was unable to accept the refund.

"Mah Sing has exercised its rights as provided in the JVA to waive the condition precedents and proceed with the transaction. We shall make further announcements when more details are available," a company official told The Edge Financial Daily.

According to a previous announcement to Bursa, Grand Pavilion, Mah Sing's wholly-owned unit and representative in the JVA, is entitled to proceed with the agreement by waiving any of the conditions if they are not fulfilled within the entitlement period.

The disagreement comes after both parties mutually agreed to extend the original deadline by a month and waive four out of five of the conditions in the JVA.

The remaining condition is the receipt by Grand Pavilion of the original issue documents of the title to the JV land with Nusantara endorsed as the legal and registered owner or an alternative arrangement accepted by Grand Pavilion.

Mah Sing announced in August it had secured the land, which formerly housed the Pekeliling flats, to develop a project called M Sentral that had a potential gross development value (GDV) of RM900 million.

Based on the preliminary plans, M Sentral involved "flexible-sized and more affordable serviced residences" catering for executives and expatriates, in addition to a few retail units.

Under the JVA, Mah Sing has to fork out RM106.6 million, of which 60% or RM63.96 million in cash and the remaining 40% through the issuance of shares in Grand Pavillion to Nusantara.

By paying RM63.69 million cash, Mah Sing will have an effective 60% stake in the prime piece of land in the city centre. This works out to about RM600 per sq ft (psf), which many see as a very low price considering land in the city is valued at above RM1,000 psf.

Industry observers said that a point of contention may be the price of the land, which appears to be quite low given that land is getting scarce in Kuala Lumpur. The net book value of the land was not disclosed as Mah Sing was not privy to the information.

Recent land transactions in the KLCC vicinity have been upwards of RM2,000, excluding the Lai Ming school land situated in Jalan Ampang which was sold to Magna Prima Bhd at about RM1,500 psf.

An earlier deal, which failed to pan out between UDA Holdings Bhd and Nadayu Properties Bhd, had priced land in Jalan Sultan Ismail at RM1,400 psf.

Asie was granted concession rights and approvals for a mixed development on 24ha, under the largest privatised urban regeneration project in KL with an estimated GDV of RM9 billion.

"The potential for this JV is good because of the 24ha size of the whole development. We will be able to tap that opportunity. And this land is one of the last few sizable land parcels in Kuala Lumpur," said Tan Sri Leong Hoy Kum, Mah Sing group managing director and chief executive, in August.

The cancellation of M Sentral would have little effect on Mah Sing, though possessing land in such a coveted location would have been good for the company in the longer term. The company, however, has a solid stable of ongoing projects and valuable landbank.

With 36 projects in its current portfolio, Mah Sing has more than RM15 billion in unbilled locked-in sales and remaining GDV.

As at mid-November, it had sales exceeding RM2 billion, its sales target for the full year.