By Khairie Hisyam
Selangor state investment arm Menteri Besar Selangor Incorporated (MBI) will challenge a recent RM1.2 billion deal in Kuala Selangor involving property developer Eco World Development Berhad.
In a statement, MBI said it will “explore any legal relief or remedies that MBI may have under the law of equity” which includes, among others, applying for an injunction against the sale.
“The management of Menteri Besar Selangor (Pemerbadanan) (“MBI”) expresses its regret that the relevant vendors highlighted in the aforesaid announcement have entered into such sale and purchase agreements with Paragon, in particular, the pieces of lands located in the intended township of Alam Mutiara, which are the subject matter of the intended acquisition by the Selangor State Government that is currently involved in ongoing legal proceedings in court,” said MBI.
Texts KINIBIZ sent to Eco World chairman Liew Kee Sin were unanswered.
The statement came after Eco World announced on Sept 22 that it has signed five sale and purchase agreements (SPAs) with four separate vendors to buy 26 land parcels totalling 2,198 acres in Kuala Selangor for a total purchase price of RM1.2 billion.
According to Eco World’s regulatory filing on the deal, the purchase price is 0.7% lower than an estimated value provided by Henry Butcher Malaysia Sdn Bhd and the land parcels will be developed into a self-contained township with a gross development value (GDV) of approximately RM15 billion.
To undertake the acquisition, Eco World stated that while it intends to foot the purchase bill through a combination of internal funds and bank borrowings, it is also exploring the possibility of bringing in external funding into its subsidiary Paragon Pinnacle Sdn Bhd, which signed the SPAs, through divesting up to 70% of its stake in Paragon Pinnacle.
This would entail soliciting institutional, private equity and corporate partners to co-invest in and fund Paragon Pinnacle, said Eco World, which alongside reducing Eco World’s stake in the company would also reduce its obligation vis-a-vis the purchase price.
“Eco World wishes to highlight that its management is in the process of refining its partnership for growth business model to raise equity funding at the project level,” the company said to the stock exchange. “This will enable it to acquire sizeable strategic lands without over-extending the balance sheet of the group.”
“Under the business model, Eco World intends to retain a minimum of 30% equity stake in PPSB to ensure that the group will continue to enjoy a meaningful share of the development profits,” added the company. A subsidiary of EW Bhd will be appointed as the development manager to manage the entire project… this will create a fee-based income stream for the group.”
However this proposed transaction structure does not sit well with MBI, which also expressed concern over potential divestment of Eco World’s shareholding in Paragon Pinnacle to “as yet unidentified third parties”.
“It is the practice of MBI, in line with proper governance, to enter into clear, well defined arrangements on an arm’s length basis and targeting long-term gains which take into consideration not only economic gains to MBI and its partners but also the social wellbeing of the State and the people, holistically,” said MBI.
Led by a group of former senior SP Setia executives including former long-time chief Liew Kee Sin, Eco World has seen fast emergence over the past few years since a reverse take-over involving then-Focal Aims Holdings by Eco World Development Sdn Bhd to become a listed entity.
On Sept 17, the company posted RM1 billion in revenue for the third quarter ended July 31, 2015 which translated into RM24.3 million in net profit.
However, the group has raked in strong sales of RM2.37 billion in the ninth-month period to date, with some RM1 billion registered in the third quarter alone.
At 9.58am, Eco World was down 1 sen to RM1.49 per share.
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