KUALA LUMPUR: UDA Holdings Bhd, burdened with the bumiputera social economic agenda, is banking on the redevelopment of the former Pudu Jail site as its saviour for the long-term survival of the company in the face of its depleting land bank and weak cash position.

UDA chairman Datuk Nur Jazlan Mohamed said the Pudu Jail redevelopment project would bring in new sources of recurring rental income to UDA, estimated at RM200 million to RM300 million a year, and more importantly, a more secure future.

“Without new income sources UDA will not have the financial means to acquire new landbank to continue development and have a future. Pudu Jail is the last major asset that we have. If we don’t do something, UDA will be in deep trouble,” Nur Jazlan told The Edge Financial Daily in a recent interview.

“Our cash has now come down to about RM90 million, from about RM100 million last year and RM125 million in 2009. I don’t even dare to start any project,” he added.

According to UDA’s 2010 annual report, its annual operating cash flow was about RM60 million for the year.

UDA was established in 1971 as the Urban Development Authority to promote planned urban development. It was eventually privatised in 1996 and listed on Bursa Malaysia three years later.

Once UDA was privatised, it stopped receiving government assistance in the form of cheap land and hundreds of millions of ringgit in annual grants. However, Nur Jazlan said UDA is still expected to further the bumiputera agenda.

UDA was delisted in 2007, becoming a wholly-owned subsidiary of Khazanah Nasional Bhd. But this doesn’t mean that its problems were solved, as the company was meant to stand on its own.

On UDA’s current options, Nur Jazlan said he is doubtful of further financial assistance from the government given that the government itself has to contend with managing its budget deficit and rising subsidy bills.

While the last big “break” from the government is the award of the 8ha Pudu Jail site to UDA, the company still has to seek a joint venture partner to foot the development bill. Even the search for a JV partner was not smooth sailing, with accusations that UDA was sidelining bumiputeras in the project.

UDA’s JV model for Pudu
After deliberating on about 10 proposals, Nur Jazlan said UDA’s board unanimously decided last week on one company to be its JV partner to redevelop the former prison site.

The final decision on the winning bid now rests with the Ministry of Finance

(MoF) which has the option of rejecting UDA’s recommendation for the JV partner or inserting additional conditions, Nur Jazlan said.

Nur Jazlan remained tight-lipped as to which company was chosen but industry observers said a possible front runner is a foreign construction player with the financial muscle and strong balance sheet to accommodate UDA’s stringent terms of reference.

The JV partner would have to first construct, at an estimated cost of RM600 million, a huge complex comprising several floors of parking spaces, a retail mall and a public transport hub that can house 180 buses.

The RM600 million cost is to be borne entirely by the partner but the ownership of the complex goes to UDA, as consideration for the “land rights”.

Such terms would require the partner to have strong balance sheet and heavy financial commitment on the project, as it would need to sink in RM600 million while not seeing any returns during the construction tenure of four years. Most important of all, the partner cannot charge the “land rights” to secure financing for the project and would still have to produce a bank guarantee amounting to RM600 million.

It is only after completing the complex for UDA that the JV partner is free to construct, on top of the UDA’s complex, high rise buildings such as offices, residential and hotel for sale or leasing purposes, which proceeds would go to the JV partner.

Nur Jazlan admitted that the terms were strict but said: “There were still many keen takers for the project”.

Tentatively, the Pudu Jail redevelopment project has an estimated gross development value (GDV) of over RM6 billion. While the complex that would go to UDA would cost RM600 million to construct, the property’s market value could at least worth RM1.5 billion, or 25% of the total project GDV.

Located at the crossroads of Jalan Pudu and Jalan Hang Tuah, the project’s strategic location as an integrated public transport hub is expected to be the crucial selling point.

The 8ha Pudu Jail site is located near light rail transit (LRT) and monorail stations with a proposed mass rapid transit (MRT) station to be built about 500m away.

Nur Jazlan is hopeful that the bus terminal can bring in an estimated 100,000 to 120,000 people daily, which would in turn boost UDA’s income via the retail space rentals and car park operations at the new complex.

Selling assets
To make the Pudu Jail redevelopment project a reality, UDA had no choice but to propose last week to dispose of a 1.5ha plot of prime land on Jalan Sultan Ismail to raise RM215.5 million cash.

While the disposal of the plot is subject to the government’s approval, it drew heavy fire from bumiputera rights groups and Umno Youth members, who allege that UDA is sidelining bumiputera interest in owning a piece of prime land in the city centre.

But Nur Jazlan said the sale of the Sultan Ismail land was necessary to raise cash to pay to the government an outstanding premium of RM104 million for the Pudu Jail land due this September, failing which the government could revise the Pudu Jail land premium up to its current market value of about RM600 million.

“We also need the money now to restart our other projects which are hampered by our poor capital situation,” said Nur Jazlan, who is Umno Pulai division head and Pulai member of parliament.

Recounting some of his previous work experience, Nur Jazlan, a trained accountant, said he started off his career with a brief stint at IGB Corp Bhd where he was involved in trying to raise capital to build the group’s flagship Mid Valley Megamall.

Nur Jazlan drew some parallels with the task he now has with UDA, noting that IGB Corp had to dispose of various assets before finally mustering enough bridging capital to obtain a loan to build Mid Valley Megamall in 1994.

“To develop our assets, we have to be smart about it. For UDA, there has to be the profit motive first and the bumiputera agenda second,” Nur Jazlan said, adding that bumiputera contractors could still benefit from the Pudu Jail project.

UDA had not purchased any new land since 1996 because the company was not generating enough earnings to replenish its landbank, a cycle which exacerbates the conundrum UDA faces.

UDA currently has about 450ha in its landbank but Nur Jazlan conceded that not all of its land was in viable areas. The most prized pieces of land include parcels in Bandar Tun Hussein Onn in Cheras (81ha remaining), Bandar UDA Utama in Johor (121ha) and the Pudu Jail site (8ha).

This article appeared in The Edge Financial Daily, June 6, 2011.