Flashback: KL Eco City – SP Setia’s deal with Umno foundation raises questions

This is something I wrote on 7 August 2011, for your information:

Cadangan S P Setia untuk mengambil-alih 40 peratus baki saham dalam KL Eco City dari Yayasan Gerakbakti Kebangsaaan (YGK) dengan nilai RM75 juta telah menimbulkan beberapa soalan. 

S P Setia already owned 60 per cent of KLEC, which had obtained a 25-acre plot of prime land opposite Mid Valley City from Kuala Lumpur City Hall (DBKL) on an 80:20 profit-sharing basis with DBKL.

Mengikut The Edge, YGK, ialah sebuah “yayasan yang dimiliki Pemuda Umno yang telah ditubuhkan dengan tujuan menguruskan dana untuk membasmi kemiskinan dan meningkat kebajikan di kalangan kaum miskin”.

Edisi 1 Ogos The Edge telah mengemukakan beberapa soalan:

• Could S P Setia have saved the RM75m?
• What was the rationale for having YGK as a joint-venture shareholder? Apakah peranan YGK?
• Did YGK have the means to fulfil its end of the deal? Or was it just an interim shareholder to cash out after the DBKL deal was secured?

And the 1 August print edition of The Edge (1 August 2011) notes that “getting RM75m in S P Setia shares seems like a fantastic deal for YGK, whose investment in KLEC is probably just 40 per cent of the latter’s current paid-up capital of RM100000, and this is even before a single brick has been laid in the project”.

Such transactions, said The Edge, “do not say much for transparency in dealing with government land”.

This is Bursa’s query and S P Setia’s response:

Type	:	Reply to query
Reply to Bursa Malaysia’s Query Letter – Reference ID	:	MM-110726-41709
Subject	:	S P SETIA BERHAD (“S P SETIA” OR “COMPANY”)PROPOSED ACQUISITION BY S P SETIA OF 40% EQUITY INTEREST IN KL ECO CITY SDN BHD FROM YAYASAN GERAKBAKTI KEBANGSAAN (“YGK”) FOR A TOTAL CONSIDERATION OF RM75,000,000 TO BE SATISFIED THROUGH THE ISSUANCE OF 19,379,845 NEW ORDINARY SHARES OF RM0.75 EACH IN S P SETIA (“S P SETIA SHARES”) AT AN ISSUE PRICE OF RM3.87 PER S P SETIA SHARE (“PROPOSED ACQUISITION”)
Description	:	–
Query Letter content	:	We refer to your announcement dated 25 July 2011, in respect of the aforesaid Proposed Acquisition.In this connection, kindly furnish Bursa Malaysia Securities Berhad with the following additional information for public release:-(1) Justification for the premium paid for the Purchase Consideration over the range as appraised by CIMB. (2) Justification for embarking on the new issuance of shares rather than other available option. (3) The following or a negative statement:- (i) Number of units in the commercial and residential development of the KL Eco City Project; (ii) Total development cost; and (iii) Expected profits to be derived.Please furnish Bursa Securities with your reply within one (1) market day from the date hereof.Yours faithfullyKHOO KAY KWAN Head, Issuers Listing Division Regulation KKK/MZM cc: General Manager & Head, Market Surveillance Department, Securities Commission (via fax)
Announcement Details/Table Section :(Unless otherwise stated, all definitions and terms used in this announcement shall have the same meanings as defined in the announcement dated 25 July 2011) Reference is made to the announcement dated 25 July 2011 in relation to the above matter. On behalf of S P Setia, we set out below additional information on the Proposed Acquisition as requested by Bursa Securities via its letter dated 26 July 2011.  1.             Justification for the premium paid for the Purchase Consideration over the range as appraised by CIMB  The premium paid for the Purchase Consideration over the valuation range reflects the Board’s confidence in the prospects of the KL Eco City Project after taking into consideration, amongst others, the development potential and strategic location which is next to an established commercial and retail hub near the affluent Bangsar area and its ease of accessibility.   2.             Justification for embarking on the new issuance of shares rather than other available option  After evaluating various alternatives to fund the Purchase Consideration, the Company is of the view that the issue of the Consideration Shares for the Proposed Acquisition would be most appropriate as it will allow the Company to conserve cash for the development of projects and also enable YGK to participate in the equity of the Company, as negotiated between the parties, which shares are traded on the Main Market of Bursa Securities.    3.             The following or a negative statement:  (i)            Number of units in the commercial and residential development of the KL Eco City Project  The proposed KL Eco City Project consists of:  (a)           Three (3) blocks of residential towers ranging from 44 to 56 storeys; (b)           Three (3) blocks of corporate office towers ranging from 32 to 42 storeys; (c)           Three (3) blocks of boutique office towers ranging from 15 to 17 storeys; (d)           One (1) block of strata office tower of 31 storeys; (e)           One (1) block of service apartment of 46 storeys; and (f)            One (1) four-storey retail podium.   The initial gross development value for Phase 1 of the KL Eco City Project comprising three (3) blocks of boutique office towers and one (1) block of strata office tower is estimated at about RM1.1 billion.  (ii)           Total development cost and expected profits to be derived  The detailed development costs and the expected profits of the KL Eco City Project cannot be ascertained at this juncture.  This announcement is dated 27 July 2011. -anilnetto.com