Sale of land to Umech based on market valuation: Penang CM

GEORGE TOWN – Chief Minister Chow Kon Yeow found himself in a spot having to answer various issues levelled at his administration by the state Chinese Chamber of Commerce over the sale of land by the state to Umech Construction Sdn Bhd.

The usual low-profile chamber held a press conference earlier today to question the deal secured between the Penang Development Corporation (PDC) and Umech, specifically over how the open tender process was not observed. 

Chow replied to the chamber’s statement hours later, citing that he had received a query from the organisation on the issue on July 27 and has since replied on August 25.

To the question that the companies involved in the open tender process were not prioritised, Chow said that Umech’s participation in the project was based on an announcement that the state had transacted in the Dubai (trade) exposition in 2020.

PDC brought the proposed development of the Byram Industry Park to the Dubai event in 2020 with the aim of attracting investors to this end.

It was strategic in view that Bryam was located near the Pulau Burung waste disposal site and there was easy access to the materials to construct the infrastructure.

But there were no concrete takers initially to the proposed investment prospect, which was worth RM1 billion.

So the then state executive councillor in charge of trade, industry and entrepreneur development Datuk Abdul Halim Hussain made announcements through the media and sought the help of the Malaysian Industrial Development Authority (Mida).

During a business matching event at the Dubai expo, Umech indicated their interest in investing in the project and they also arranged for discussions with the prospective funders.

Based on the financial discussions, PDC was convinced that Umech was capable of implementing the project with the aid of financial backers in Dubai.

“Due diligence was also conducted on the project,” said Chow in a statement.

Direct negotiation was decided as the suitable recourse to secure the best offer for PDC.

Apart from the Umech project, Chow said that the mixed development of 245 acres in Bandar Cassia by the Aspen property development group was also secured through such a process.

The same was for the development of a university by Paramount Property Sdn Bhd which also went through a similar direct negotiation process, said Chow.

These two projects were listed under the high-impact category, added Chow.

The sale of land to Umech was based on direct negotiation and was calculated based on the concurrent market valuation of the plot.

The price was lower because the site was pristine, so it is not comparable to the industrial land pricing because the area is not developed yet.

PDC estimated that Umech needed to come up with a sales and purchase price of no less than RM500 million for the transaction to proceed, said Chow.

The sum was to be paid on an instalment basis and it also considers the possible rise in land premiums during the following years the payments are made.

This, Chow said, would ensure that PDC does not lose the “opportunity cost” and can monitor the work progress undertaken by Umech effectively.

If Umech fails to repay the annual premium payments, PDC can withhold the sale of the remaining land, stressed Chow, to highlight the transparency the corporation took.

As for the financial security of Umech, Chow said that PDC has relied on the credit rating system (CTOS) which revealed that the paid-up capital of the company was RM10 million with zero gearing ratio in view that all forms of payment went through Umech Construction.

The company also does not have any lingering debt nor was it blacklisted.

It has a strong resilient factor to commit to developing the Byram Industrial Estate while there were also supporting letters from financial institutions given to the PDC.

The sale of land has yet to happen because Umech is now undergoing a feasibility study to gauge the market reaction to the project and to ensure that it is competitive business-wise in collaboration with PDC.

PDC followed all procedures, but Chow admitted that the last-minute inclusion of the major master developer Sunway Group into the project was beyond the knowledge of PDC.

“The entry of Sunway as a major shareholder in Umech was beyond PDC. It was only related to us later when a public announcement was made over the signing of an agreement between PDC, Umech and Sunway,” said Chow.

Although Umech was bound to inform PDC of any change in the company equity, the entry of Sunway into the construction giant happened before the agreement was signed with PDC, said Chow.

PDC plans to seek clarification from Umech over the matter at the upcoming PDC board meeting, he added.

Earlier, Sunway released a statement that in collaboration with Umech, it has signed a joint development agreement with PDC to develop a 559-acre industrial park in Batu Kawan.

The project is expected to have a gross development value (GDV) of at least RM3.5 billion.

Sunway said in the statement that as part of the partnership, the company and Umech are providing PDC with a land entitlement valued at RM646 million.

Sunway believed the land is an ideal site for the proposed industrial park, complementing the growing industrial areas in Batu Kawan, including Batu Kawan Industrial Park 1 (BKIP1) and Valdor Industrial Park. – The Vibes, October 3, 2023