This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021
On Aug 2, Ivory Properties Group Bhd announced that it had entered into a binding term sheet with privately held property developer ECK Group to jointly develop 135 acres of residential land near the proposed new international airport in Kulim, Kedah.
Under the pact, Ivory Properties is to provide a RM1 billion corporate guarantee in favour of KXP AirportCity Holdings Sdn Bhd (KXPACH), a subsidiary of Kedah Development Corp, for the due performance and observance of ECK’s obligation under the airport project. While the mandate to build a city near the airport is attractive, a RM1 billion corporate guarantee seems like a tall order for Ivory Properties. Based on its closing share price of 15 sen last Thursday, its market value was only RM76.14 million. As at March 31, 2021, its cash and bank balances stood at RM3.4 million while its borrowings totalled RM116.92 million.
Nevertheless, a hurdle seems to have been crossed as the Kedah state government, on Aug 2, signed a joint venture (JV) agreement with ECK to build the new Kulim International Airport. Under the JV, ECK will own 80% of a special purpose vehicle to be set up while KXPACH will own the rest. The idea for the proposed Kulim airport was floated as far back as 2015. Much has been deliberated on the financial viability of the Kulim airport, considering its close proximity to Penang International Airport. The fear is that the new airport would merely cannibalise traffic from Penang Airport. Nevertheless, the green light for the new airport and the Kedah government’s involvement in the project itself suggest that sufficient studies have been done on market demand, its viability in the long run and its impact on the state, lest it become a white elephant. All eyes are now on who will foot the bill as the first phase of the Kulim airport is expected to cost RM6 billion, which includes land acquisition costs.
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