Final decision on Plaza Rakyat soon

THE EDGE WEEKLY ISSUE#1003

THE WEEK OF FEBRUARY 24 – MARCH 2, 2014

By: KAMARUL AZHAR

The arbitration proceedings between Plaza Rakyat Sdn Bhd  (PRSB) – the original developer of the long-abandoned Plaza Rakyat  project – and Dewan Bandaraya Kuala Lumpur (DBKL) are set to be concluded on Feb 28, according to a senior bank officer, whose employer is an interested party in PRSB.

DBKL and PRSB – previously controlled by Tan Sri Ting Pek Khiing but now in receivership and under the administration of a consortium of lender banks – are locked in a legal battle over various issues.

These include the right of DBKL to repossess the 15.3-acre project site adjacent to Pudu Sentral (formerly Puduraya), the forfeiture of the leases for the land that comprises five adjoining parcels, and whether the build-lease-transfer concept of the project ought to have been changed to an outright sale.

“The arbitration results will be out on 28 Feb.  Until then, all parties can only wait.  The banks would like the legal status to be clarified so that the new developer can rehabilitate the project and they can recover the loans owed to them by PRSB,” says the bank officer. 

To recap, in Feb 2010, DBKL issued a Notice to Remedy Default to PRSB as a result of non-performance in the Plaza Rakyat project despite the completion date being extended several times, with a final deadline of May 31, 2007.

PRSB disputed the notice and invoked the arbitration clauses stipulated under the (JV) agreement (JVA) with DBKL.  DBKL, then, responded by issuing letters to PRSB purporting to terminate the JVA and lease agreement.

These mattes are now pending deliberation.  With the arbitration proceedings set to be concluded next week, the legal question of whether Ivory Properties Group Bhd can acquire the project land from PRSB will also be answered.

Ivory’s 65%-owned subsidiary, Ivory Place Sdn Bhd, had on Sept 5, 2013 signed an acquisition and rehabilitation agreement (ARA) with PRSB to acquire the leases and development right of the project land on an “as is” basis for RM400 million cash, equivalent to about RM603 psf.

However, the ARA’s conditional precedents, among others, require an agreement between PRSB and DBKL to fully settle disputes in relation to the project and for Jawatankuasa Tanah Wilayah Persekutuan Kuala Lumpur to transfer the lease to Ivory Place.

Coincidentally, the ARA will lapse five days after the arbitration findings are made known.  The parties extended the completion of the ARA until March 5, three months after the original period lapsed.

If the arbitration results favour PRSB, which means DBKL would have no legal rights to repossess the project land, Ivory Place should be able to take over the project and PRSB will be able to settle its debts with the creditors.

PRSB owes the banks RM76.03 million, according to a court document seen by The Edge, and its now-defunct parent, Wembley Industries Holdings Bhd, RM326.17 million.

A court document in the RHB Bank Bhd-Wembley case states the PRSB had invested about RM800 million in the Plaza Rakyat project and completed the foundations as well as the Plaza Rakyat LRT station.

However, winning the arbitration proceedings would not be the end of the story as Ivory Place will still need to get various development approvals from DBKL.

Ivory Place must first negotiate with DBKL for a new or amended JVA with regard to the project.  Among the conditions sought by Ivory Place is approval for a new 99-year lease on the project land and a 10 to 1 plot ratio.

Observers say the ARA is not palatable to DBKL because it will only get a maximum share of 7% -- but not exceeding RM560 million – of the (GDV) of the entire project.  This would translate into RM844 psf for the 15.3-acre site, which is comparable to the price paid by Gamuda Land Sdn Bhd for the Robertson project land next to Plaza Rakyat.  The Plaza Rakyat land is worth between RM1,000 and RM1,200 psf, according to real estate valuers.

This site has better connectivity than The Robertson’s as it is located next to the Urban Transformation Centre (formerly Pudu Sentral) and is connected to an LRT station.

According to another court document on the arbitration proceedings seen by The Edge, DBKL is demanding an additional RM265 million for the revaluation of the project land and a minimum 20% of guaranteed profit from PRSB.

It will be an uphill task to revive Plaza Rakyat because the land comes with encumbrances and the project has been abandoned for almost 20 years.  Ivory Place will have to rework the foundations and the pillars, say property players.

On the other hand, if the arbitrator sides with DBKL, Ivory Place will likely lose the chance to rehabilitate the project.  This is because the ARA will be rendered invalid as DBKL had unilaterally terminated the JVA with PRSB in 2010.

In fact, when the ARA was signed by Ivory Place in Sept, 2013, DBKL announced that PRSB had no legal standing to enter into any pact with any third party to redevelop the site.  DBKL said it had no knowledge of the agreement between PRSB and Ivory Place.

Whatever the outcome of the arbitration, it is in the best interests of (KL) residents to see an eyesore in the city rehabilitated and bring economic benefit to the Pudu area.E