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This article first appeared in The Edge Malaysia Weekly on May 13, 2019 - May 19, 2019

CHINA-based Guangzhou Xu Zhuo Enterprise Management Co Ltd, which is buying a 43% stake in Profit Consortium Sdn Bhd — the developer of the long-abandoned Plaza Rakyat in Jalan Pudu, Kuala Lumpur — is expected to pay off the outstanding debt due to Kuala Lumpur City Hall (DBKL) and recommence work on the project soon.

“The Plaza Rakyat project is being taken over by a new consortium, which finalised its takeover at end-March. It has also contacted DBKL (to) pay the amount outstanding (by Profit Consortium) and is expected to start work soon,” Minister of Federal Territories Khalid Abdul Samad tells The Edge.

Guangzhou Xu Zhuo, a management services company, is buying the stake in Profit Consortium for RMB4 million (RM2.4 million) from Singapore-listed Debao Property Development Ltd. Profit Consortium had problems in funding the project, resulting in delays to the development. Following the stake sale, Debao’s stake, held via its wholly-owned unit Pavillion Treasures Land and Development Sdn Bhd, in Profit Consortium will be diluted to 19% from 62% currently.

Recall that in 2015, Profit Consortium had bought the partially completed Plaza Rakyat project, located on five parcels of leasehold land totalling 29.64 acres, from DBKL for RM700 million. So far, only a portion of the sum has been paid.

In an announcement to the Singapore Stock Exchange (SGX) on April 29, Debao said that as at Feb 21, Profit Consortium had paid to DBKL the first instalment of RM70 million, part of the second instalment amounting to RM20 million, which was due on March 31 (from the total amount due of RM140 million) and late payment interest of RM11.31 million.

“The third, fourth and fifth instalments of RM150 million, RM150 million and RM190 million respectively, are payable after the building plan has been obtained,” Debao says, adding that Profit Consortium also owes pensioners RM7.36 million under a government contract.

According to Khalid, apart from the initial deposit of RM70 million, Profit Consortium has paid RM70 of the RM140 million due from the second instalment. “It has already paid half (of the RM140 million) and the balance will be paid by the end of this month.”

Under the deal, Guangzhou Xu Zhuo will also loan RMB136 million to Profit Consor­tium as working capital for the repayment of the company’s accounts payable. A search on the Companies Commission of Malaysia (SSM) website shows that Profit Consortium’s total liabilities for the financial year ended Dec 31, 2017 (FY2017) stood at RM129.1 million, all of which were current.

Guangzhou Xu Zhuo is wholly owned by Guangdong Hailunbao Investment Co Ltd, whose ultimate shareholder is Hailunbao Group Holdings Ltd. It is involved in the elderly care industry, investment and development, business management services, hotel management and land and real estate development.

Profit Consortium had finalised the development plan of Plaza Rakyat in 2017 and commenced the repair works to the existing development on the land. However, due to cash flow difficulties to fund working capital requirements, work was halted.

The project is a large-scale mixed-use development that will include high-quality residential units, a five-star hotel, a budget hotel, offices and a large-scale shopping mall. An earlier development proposal submitted to DBKL revealed that the components will include a 96-storey skyscraper and two 81-storey towers.

Debao told SGX that it believes that when it is completed, the Plaza Rakyat project will be the second highest twin tower building in the world, after Petronas Twin Towers in Kuala Lumpur .

Debao also said that its cash flow is strained due to the tightened monetary policies implemented by the Chinese government to curb liquidity and higher bank statutory reserves mandated in past years. “As a result, the amount of funds available to commercial banks in China to lend to businesses has reduced, including to the group.”

Moreover, interest rates have risen, leading to increased finance costs, it added.

Debao said the stake disposal in Profit Consortium will strengthen its financial position as the group requires a significant capital injection to fund its other property development projects.

Profit Consor­tium has been incurring losses since 2016. Its accumulated losses stood at RM7.79 million as at Dec 31, last year.

The other shareholders of Profit Consor­tium are Datuk Seri Tee Yam with a 20% stake and Gabungan Tiasa Sdn Bhd with 18% equity interest. Gabungan Tiasa in turn is owned by Eco Habitat Sdn Bhd (33.33%), Md Haidar Md Sharif (28.67%), Koo Chen Yeng (28.67%) and Mohamad Fazhly Johari (9.33%). Eco Habitat, meanwhile, is 90% controlled by Tee Yam while Wong Siaw Puie and Ameera Encee Koo Abdullah each hold 5%.

The history of Plaza Rakyat goes back to 1993, when Sarawak tycoon Tan Sri Ting Pek Khiing’s Plaza Rakyat Sdn Bhd, a subsidiary of Wembley Industries Holdings Bhd, undertook to develop the land. However, the project stalled in 1998 due to the 1997 Asian financial crisis. DBKL took vacant possession of the abandoned site in 2014, after repaying a RM150 million loan taken out by Plaza Rakyat Sdn Bhd.

In 2014, prior to an arbitration court ruling that DBKL had the right to repossess the Plaza Rakyat site, Penang-based Ivory Properties Group Bhd had planned to revive the project.

 

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