Selangor wants full payment, now

KUALA LUMPUR: The Selangor government has asked Tropicana Corp Bhd to expedite the payment of RM844.2 million for a huge tract of land it sold to the latter just before last year’s general election.

In a statement yesterday, Menteri Besar Tan Sri Abdul Khalid Ibrahim said Tropicana had  “realised the land’s potential from its partial sale” to Eco World Development Group Bhd, hence “the state, too, will do the same”.

The demand came shortly after Tropicana signed a deal last week to sell a quarter of the said 1,172-acre (474.3ha) tract — formerly known as Canal City land — to Eco World for RM470.567 million cash, to be paid in one lump sum.

The sale to Eco World has raised eyebrows as it already amounts to 36% of the RM1.3 billion total
consideration that Tropicana was only required to pay, over 20 years, to the state government for the entire 1,172 acres.

“The state government through Menteri Besar Selangor Incorporated (MBI) is now looking at realising the full potential of the land at net present value (NPV), amounting to a total of RM844.2 million, instead of waiting 20 years for Tropicana to realise its (the land’s) potential valued at RM1.3 billion,” said Abdul Khalid.

Under an agreement signed last April with state-owned entity Permodalan Negeri Selangor Bhd (PNSB), Tropicana was supposed to pay for the 1,172-acre tract in instalments over 20 years. As per the original terms, the developer had to fork out only RM50 million for the deposit and two advance payments within six months of the agreement. Subsequently, it is required to pay RM537 million over 12 annual instalments together with interest of 5% per annum up to a total of RM252 million for the land.

Meanwhile, the remaining sum of at least RM458.3 million, in the form of 5% share of the gross development value (GDV) of the land as well as profits, will be paid over 18 years as the projects are developed. The total consideration comes up to about RM1.3 billion.

The original terms were said to favour Tropicana as it only needed to pay a minimal amount upfront to own the huge tract of land.

“The sale and purchase agreement between Tropicana and Eco World, involving a quarter of the 1,172 acres of land formerly known as Canal City, has given the Selangor government a new perspective into the agreement between PNSB and Tropicana,” said Abdul Khalid, lamenting that the state government has to wait 20 years to realise the value of the land under the original terms.

“We hope Tropicana will expedite the full payment so that we can then channel the RM844.2 million to implement various other property developments and social programmes for the benefit of the people of Selangor,” he added.

Abdul Khalid could be expecting Tropicana to agree to enter into fresh negotiations even though the terms had been sealed in last year’s agreement signed between the developer and PNSB. This is possible as Tropicana still needs to obtain state government approvals for its development of the Canal City land.

“The state government will give its full cooperation to Tropicana and Eco World in obtaining the relevant approvals from the local authorities to ensure their development plan follows through,” said the menteri besar.

The payment of such a huge amount upfront or in the near term could have an impact on Tropicana, which has been disposing of selected assets to reduce its gearing.

The developer actually said in a statement last week that the disposal to Eco World would help strengthen its balance sheet, apart from unlocking value. As at Dec 31, 2013, Tropicana’s net borrowings stood at RM1.47 billion, compared with shareholders’ funds of RM2.73 billion.

When contacted, an official with Tropicana said its senior management could not comment as they werse travelling.

In a recent note, Affin Investment Bank Bhd said it is positive on the land deal between Tropicana and Eco World. According to its analyst, Tropicana stands to register a net gain of RM170 million from the sale, and it could utilise the RM260 million in estimated net proceeds, coupled with higher shareholders’ funds (after booking in RM170 million gain on disposal) to help reduce its net gearing ratio.

“The asset monetisation and de-gearing initiative is, in our view, a key re-rating catalyst for Tropicana’s share price,” the research firm said.

After the disposal, Tropicana still owns 440 acres of net developable area in Tropicana Aman (the new name of the Canal City township) with a potential GDV of RM13 billion. It is said the group plans to launch Phase One of the township in the second half of this year. It will comprise landed properties with an estimated GDV of RM770 million.

This article first appeared in The Edge Financial Daily, on March 27, 2014.


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