KUALA LUMPUR (Mar 12): The Selangor state government, via Menteri Besar Selangor (Pemerbadanan) (MBI), will be able to reap higher gains from the sale of a 1,172-acre piece of leasehold land in the former Canal City, Selangor.

This follows the signing of a second supplementary agreement between MBI and Tropicana Corp Bhd's wholly-owned unit Sapphire Index Sdn Bhd today that saw MBI's entitlement almost double to 9% of the gross development value (GDV) of the mixed residential and commercial development to be developed, from 5%.

Based on the initial estimated GDV for the proposed development which is reported to be up to RM20 billion, MBI can expect a gain of RM800 million.

In a filing with Bursa Malaysia today, Tropicana (fundamental: 1.3; valuation: 1.8) said the definition of GDV has been amended to "the total value of the development on parts of the lands by Sapphire Index based upon the actual sales of all units available for sale as evidenced by signed sale and purchase agreements by end-purchasers".

The second supplementary agreement signed with MBI and Permodalan Negeri Selangor Bhd (PNSB) also stipulates that Sapphire Index will use its best endeavour to launch the proposed development and pay the GDV entitlement within 12 years subject to market conditions.

"Sapphire Index shall (also) use its best endeavour to pay the profit entitlement in one instalment subject to confirmation of the final accounts of the project on or before the expiry of 12th year from the first instalment payment date," said Tropicana.

"In consideration of Sapphire Index agreeing to increase the GDV entitlement, the interest, estimated at RM252 million, will not be payable in relation to any of the instalments including the instalments payable in respect of the portion of the land measuring 308.72 acres which Sapphire Index is disposing to Eco Sanctuary Sdn Bhd," it added.

Based on the estimated gain of RM800 million, this would mean that MBI could see a net gain of RM548 million after deducting the interest waived.

To recap, Tropicana (then Dijaya Corp Bhd) had inked the agreement to buy the land from MBI in April 2013 for RM1.3 billion.

In March 2014, Tropicana signed an agreement to sell 308.7 acres of the land to Eco Sanctuary, which is wholly owned by Eco World Development Group Bhd, which reportedly saw Tropicana making a net gain of RM170 million from the RM470.7 million land sale.

Tropicana shares closed unchanged at RM1.02 today, for a market capitalisaion of RM1.4 billion.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)