Going to the market for a solution

-A +A

THE revival of the Plaza Rakyat project, which has been a real eyesore for the past 15 years, is a stark reminder of the skyrocketing property prices in Kuala Lumpur.

The receiver and manager of the project, AdamPrimus Chartered Accountants, put what is touted as one of the last tracts of development land in the city on the market on May 20 and already, some of the big names in the property development industry have expressed interest in it. "We have thus far seen positive response from both local and foreign industry players," says AdamPrimus in an email reply to The Edge.

While there are scant details, land-hungry developers seem interested to revive the project even though large man-made ponds now dominate the site, which is located next to the busy Pudu Raya bus terminal. 

"We are keen to explore the opportunities that the rehabilitation of the Plaza Rakyat project will bring and to see if it fits our business model," says Tan Sri Leong Hoy Kum, managing director and group chief executive of Mah Sing Group Bhd in an email reply to The Edge.

Gamuda Bhd, which has a RM670 million mixed-use development called Robertson next to the Plaza Rakyat site, tells The Edge that "it [Plaza Rakyat] is within our interest and we are open to reviewing the possibilities [to participate in reviving the project]".

The Plaza Rakyat project, located on 15.3 acres of prime land off Jalan Pudu, stalled in 1998.

Its ultimate shareholder Tan Sri Ting Pek Khiing has been trying to get the project off the ground in the aftermath of the 1997/98 Asian financial crisis, but to no avail. Apart from financing difficulties, Plaza Rakyat Sdn Bhd has unsettled disputes with Dewan Bandaraya Kuala Lumpur (DBKL), which is an interested party in the project.

Wembley Industries Holdings Bhd, the sole shareholder of PRSB and the entity that was financing the bulk of the construction works, was delisted from Bursa Malaysia in September 2008 after it failed to restructure its debt.

Ting's flagship Ekran, which owns about 33% of Wembley, also could not recover from the financial crisis and was removed from Bursa in January 2010. Five banks — RHB Bank, Malayan Banking, Public Bank, Hong Leong Bank and Affin Bank — were owed some RM145 million in total by PRSB as at end-2010, inclusive of interest on the original RM50 million loan drawn down. The lenders have first claim to all the fixed and floating assets of PRSB.

RHB Investment Bank, which acts as the security agent for the consortium of lenders, appointed AdamPrimus on Feb 18 this year and since then, the latter has gained full authority over the affairs of PRSB.

At the same time, the powers of the company directors, comprising Datuk Mohammed Shukor Abdullah, Datuk Stanley Isaacs and Ting's son Sie Chuong, were suspended.

It is learnt that AdamPrimus has met DBKL and informed the local authority of its intention to advertise the tender for the Plaza Rakyat site despite an ongoing arbitration between PRSB and DBKL.

The arbitration came about after the Federal Territories and Urban Wellbeing Ministry terminated a joint-venture agreement (JVA) it had entered into with PRSB in December 1992. It is learnt that PRSB is seeing a large claim from DBKL for the termination, which resulted in the matter being referred to arbitration in early 2010. Pending the outcome of the arbitration, PRSB obtained an interim injunction in May 2011 against DBKL seizing the land.

High-stakes game

The prize is high for either side as the 15.3 acres are estimated to be worth between RM670 million and RM800 million or more, based on conservative land price estimates of RM1,000 to RM1,200 psf, says a real estate valuer.

For instance, in 2010 and before property prices picked up, a 2.94-acre plot next to Plaza Rakyat was sold to Gamuda for RM820 psf by Wearne Brothers Properties Pte Ltd.

Gamuda is developing commercial units on the site and has named the project Robertson, after the small lane that separates the Plaza Rakyat site from what was a car showroom operated by Wearne Brothers. 

Since 2010, property prices have surged in the city. This inevitably makes Plaza Rakyat a target for a project worth a few billion ringgit in gross development value (GDV), dwarfing its original estimated GDV of less than RM1.5 billion based on building plans drawn up 15 years ago.

"The potentially higher GDV justifies the cost of rebuilding and cleaning up the site and making the project viable," says a developer that is keen to bid for the site. This lends credence to the widely held belief that irrespective of the outcome of the arbitration between PRSB and DBKL, the Plaza Rakyat project is likely to see some development.

If PRSB wins and retains the right to the project, the tender called by receiver AdamPrimus will go on as planned because the project is now under it. If DBKL wins, it will probably cooperate with AdamPrimus to end the dispute.

"It is crucial for the receiver to work well with DBKL. At the end of the day, you need to get the building plan approved by City Hall to get the project moving," says a source.

It is worth noting that although DBKL had earlier agreed in principle to convert the 88-year lease of the land under a "build, lease and transfer" model to an "outright sale" with a typical 99-year lease, the agreement has yet to be inked.

Explaining the rationale for putting the site up for tender before knowing the outcome of the arbitration, AdamPrimus says the arbitration involves complicated issues and may not represent a final resolution as parties not satisfied with the decision — including DBKL and the secured lenders of the project — may appeal against it.

"Going to the market to find a commercial solution is the best way forward for all parties in these circumstances. The process of inviting experienced, strong and capable parties should not interfere with the arbitration, as we hope to find a solution to all pending matters — including the arbitration.

"We are hopeful that the process of going to the market will bring forth solutions that will benefit and meet the acceptance of all stakeholders. The arbitration may not provide a conclusive resolution as either party will have the right to appeal," says AdamPrimus.

Bukit Bintang MP Fong Kui Lun, who is familiar with the Plaza Rakyat issue, believes there should be a resolution soon in the arbitration "because it has taken so long".

He remembers KL mayor Ahmad Phesal Talib saying in a press conference last December that the Plaza Rakyat project might be revived in the near future. The mayor did not say when the arbitration will end but revealed that a new party would be appointed when it does.

What is left for Ting?

If indeed a new developer comes in and takes over the Plaza Rakyat project, it is uncertain if there will be anything left for Ting.

According to court filings, Wembley in 1994 acquired Clifford Investments Ltd (CIL) — the holding company of PRSB — from Datuk Hamzah Abdul Majeed and his wife Datin Freida Pilus for RM150 million (see chronology of events).

Before Wembley came in, it is believed that PRSB had paid the government a land premium of RM58.6 million, funded mostly by a RM50 million loan drawn down from the consortium of five banks.

Although the land premium seemed modest even for that time, the JVA between PRSB and DBKL entailed the company building "certain agreed structures", believed to be the Plaza Rakyat LRT station, at its own cost for DBKL.

Wembley paid the RM150 million consideration for PRSB solely by issuing 60 million new shares in Wembley to Hamzah and Freida.

In terms of actual expenditure, a court document detailing the dispute between PRSB and DBKL dated May 2011 states that Wembley "expended over RM300 million" on the Plaza Rakyat project, turning the site into what it is today, including the foundations, infrastructure and LRT station.

The value of the Plaza Rakyat project carried in PRSB's book in FY2010 ended Dec 31 was RM329 million, after accumulated impairment losses of RM415.3 million. If indeed PRSB could sell the Plaza Rakyat project in its current form for RM800 million or RM1,200 psf, the residual amount that could go to Wembley would be RM449 million.

This is assuming a repayment of about RM145 million to PRSB's lenders and RM206 million in trade payables to third parties as stated in PRSB's FY2010 accounts.

It is worth noting that Wembley's consolidated total liabilities stood at about RM850 million as at Dec 31, 1999, as shown in its last published annual report before it was delisted. The liabilities would have included those at 100%-owned unit PRSB.

Wembley's current financial status is not known.

So, there really is nothing much left for Ting. On a bright note, Ting's business associates and family could still bid for the Plaza Rakyat project.

After Wembley was hit by financial difficulties, Ting's private construction outfit, Global Upline Sdn Bhd, tried to enter into a new agreement with DBKL and PRSB in 2007 to salvage the Plaza Rakyat project, but nothing came of this.

At the moment, if Ting wanted to revive the project, he would also have to deal with the perception that his companies were responsible for its 15-year delay.

The rise and fall of Ting

In executing his Malaysia Inc and privatisation drive, Tun Dr Mahathir Mohamad, during his 23-year tenure as prime minister, nurtured a handful of businessmen who benefited immensely from his economic policies.

One of them is Tan Sri Ting Pek Khiing, the former largest shareholder of Ekran Bhd whose 33% associate company Wembley Industries Holdings Bhd was given the mandate to develop Plaza Rakyat on 15.3 acres of prime land in Jalan Pudu in Kuala Lumpur.

Ting became a member of Mahathir's inner circle after Chief Minister of Sarawak Tan Sri Abdul Taib Mahmud noticed him as a contractor who completed his projects ahead of schedule.

Ting had started his business picking up marginal construction jobs in the rural backwater of Sarawak. Then he moved on to bigger jobs.

His close relationship with Taib accelerated Ting's ascent in the state government's business and political circles.

He caught Mahathir's attention when he completed a resort in just three months — in time for the inaugural Langkawi International Maritime and Aerospace Exhibition (LIMA) in 1991. It saved the government the blushes then.

Ting's can-do spirit, which he injected into his construction jobs to deliver them fast, impressed Mahathir.

Ting's Ekran was subsequently awarded the job to build one of the largest hydroelectric dams in Asia — Bakun, in 1994.

As things turned out, the project was completed only three years ago and at a heavy cost to the government.

Like many other tycoons in the 1990s, Ting was hit hard by the Asian financial crisis that caused the ringgit to tumble.

The government put Bakun on hold in 1998, which cut off Ekran's lifeline because the project was key to the company and other listed companies in Ting's stable.

Wembley also felt the effects of Ekran's troubles.

As a result, the construction of Plaza Rakyat ground to a halt in 1998, and it has been abandoned since.

Ting attempted to find financing and resume its construction, but to no avail. Both Ekran and Wembley were subsequently delisted and put under receivership.

Ting himself was declared a bankrupt on Oct 28, 2010, by the Kuala Lumpur High Court. All his personal assets in Ekran have been vested with the Director-General of Insolvency.

Ting now keeps a very low profile in Corporate Malaysia, but Plaza Rakyat is a stark reminder of his rise and fall.

The tortuous journey of Plaza Rakyat

December 1992

Datuk Hamzah Abdul Majeed and his wife Datin Freida Pilus secure the Plaza Rakyat mixed-use development and transport hub project through Plaza Rakyat Sdn Bhd (PRSB).

PRSB enters into a joint-venture agreement with Dewan Bandaraya Kuala Lumpur on Dec 16, 1992, to develop the project. DBKL grants PRSB an 88-year lease on the 15.3-acre tract.

In the same month, Wembley Industries Holdings Bhd, controlled by Sarawak tycoon Tan Sri Ting Pek Khiing, enters into an agreement with Hamzah and Freida to acquire Clifford Investments Ltd (CIL) — the holding company of PRSB, for RM150 million paid for with new shares in Wembley.

The acquisition is completed on Aug 8, 1994, with an aggregate profit guarantee of RM140 million.

Ting is the controlling shareholder of Ekran, which in turn is a major shareholder of Wembley with a 32.82% stake.

1993 to 1994

Construction starts on Plaza Rakyat with Daewoo as the lead contractor. The project is scheduled to be completed in 72 months in 2000.

July 1997

The Asian financial crisis strikes.

August 1997

Wembley sends a letter of demand to Hamzah and Freida asking for RM129.67 million — the amount said to be outstanding in the profit guarantee.

October 1997

Hamzah and Freida claim repayment of shareholders' advance amounting to RM83.03 million from Wembley.

1998

Work on Plaza Rakyat stops. PRSB asks DBKL for more time to complete the project. Daewoo sues for payment for work done.

In the same year, Wembley is put into receivership after it fails to settle a RM130 million loan from Phileo Allied Bank. Wembley's largest shareholder Ekran also loses the Bakun hydroelectric dam project.

PRSB scrambles for financing as its shareholders can no longer pump money into the company. By the end of the year, PRSB owes Wembley RM362.17 million.

December 2005

PRSB and DBKL agree in principle to change the BLT (build, lease and transfer) concept to an outright sale of land. However, the agreement is not executed.

August 2006

Wembley enters into a settlement agreement with Hamzah and Freida to amicably resolve the respective suits, with each party bearing its own costs.

Mid-2007

PRSB proposes to DBKL that a revised joint-venture agreement be entered into between the parties, which would see the appointment of Global Upline Sdn Bhd — a private vehicle controlled by Ting, as the contractor. The revised joint-venture agreement does not materialise.

June 2008

DBKL proposes that the parties work within an agreed memorandum of understanding (MoU). However, it later abandons the MoU.

September 2008

PRSB sends DBKL a draft for a proposed novation agreement at the latter's request. After several meetings, DBKL abandons the novation agreement in December.

August 2009

At the request of DBKL and Global Upline, discussions resume. The discussions include the Economic Planning Unit of the Prime Minister's Department. After several meetings, DBKL insists that PRSB transfer the 15.3-acre tract to it immediately.

February 2010

DBKL issues PRSB a notice to remedy default under the JVA and lease agreements.

PRSB disputes the notice and invokes the arbitration clauses in the JVA and lease agreements.

April 2010

DBKL issues letters to PRSB purporting to terminate the JVA and lease agreements, giving notice to take possession of the project land and cancel PRSB's lease.

May 2011

The High Court of Malaya grants an injunction against DBKL to stop it from repossessing the project land, pending the outcome of the arbitration.

December 2012

New Kuala Lumpur mayor Ahmad Phesal Talib promises to appoint a new contractor for the project.  

February 2013

RHB Investment Bank, being the security agent for the consortium of lenders to PRSB, appoints AdamPrimus Chartered Accountants as the receiver and manager of PRSB.

May 2013

AdamPrimus calls for interested parties to submit proposals for the rehabilitation, completion, takeover and/or acquisition of the project.

This story first appeared in The Edge weekly edition of May 27-June 2, 2013.