Missed opportunity

This afternoon Tabung Haji Chairman Dato’ Sri Azeez Rahim announced that the BoD of the pilgrimage investment body decided to hive off the controversial 1.6 acre plot in Tun Razak Exchange (TRX), amidst the serious contentious overtone of the business deal of the acquisition.

NST story:

Tabung Haji to sell off 1MDB land

BY ARNAZ M. KHAIRUL – 9 MAY 2015 @ 3:07 PM

KUALA LUMPUR: The plot of prime land in the Kuala Lumpur city centre which Lembaga Tabung Haji (LTH) purchased from 1Malaysia Development Berhad (1MDB) is to be sold to the highest of three bidders within the next two weeks, its chairman Datuk Seri Abdul Azeez Abdul Rahim announced today.

Azeez said the LTH board had unanimously agreed upon the sale of the 0.63ha plot of land, located at the Tun Razak Exchange (TRX), in a meeting attended by all 11 board members this morning, although a similar meeting last night had seen the board unanimously agree to proceed with plans to develop the land as everything was above board, despite criticism from various quarters over the purchase.

“This morning, I received a call from the Prime Minister (Datuk Seri Najib Razak). I must stress that this was not a directive, but he advised us to sell the plot of land seeing that the issue had created too much defamatory rumours”.

“The board met this morning and we decided that in the best interest of the public and Tabung Haji depositors that we heed that advice,” said Azeez.

The land which was purchased at RM188.5 million will now be sold to the highest of three interested bidders with LTH set to make a minimum profit of RM5 million. Azeez said there was no criteria set on the bidders being Muslim or not.

“The process of this purchase had adhered to all our regular procedures in procurement and investment. It was scrutinised by the board since the proposal was first made in April 2013.

Everything was above board and we decided that this was a worthwhile investment which would profit LTH. It was purely a commercial decision,” said Azeez. He stressed that Tan Sri Ismee Ismail, who is LTH chief executive officer and managing director as well as 1MDB director, had abstained from being part of discussions regarding the purchase as he was privy to information from both parties.

These matters, he said, were overseen by deputy chief executive officer Datuk Johan Abdullah.

“There was no political motivation in the purchase of this land, but as it turned out LTH has been dragged into this issue by those who have politicised it. It is an investment in property, the same as investments we have made both locally and abroad. It doesn’t in any way have an effect on the dividends or deposits of the public in LTH.

“In fact, it is such investments which allow us to provide dividends and subsidise pilgrimage for our depositors. We also reassure our depositors that none of their money is affected as their deposits are guaranteed by the government. This will not stop us from making further investments in real estate for the benefit of our depositors.” Azeez said LTH will continue to invest in other properties, stating that the fund still has an allocation of more than RM5 billion in which they can explore further real estate investments.

Bloggers had previously revealed documents believed to be from LTH pertaining to the purchase, and Azeez said the matter had called for an internal investigation.

“It was stated that these documents were made available to them by LTH. But this is not the case and police reports have been lodged against these bloggers,” said Abdul Azeez.

Read More : http://www.nst.com.my/node/83671

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The decision to sell off the said prime land in a hugely potential new growth international financial district of Kuala Lumpur is very tactical and deemed to be a political reaction, instead of one based on the principles and interests of  business.

The fact is that 1MDB, which obtained the land and the planning right to develop into such a new high end and premium development, offered the parcel to TH back in 2013 at a price of RM220 million.

1MDB Profit and Loss FY 2013 (pp 1)

1MDB Profit and Loss FY 2013 (pp 1)

1MDB Profit and Loss FY 2013 (pp 2)

1MDB Profit and Loss FY 2013 (pp 2)

That was when the Malaysian Government strategic investment corporation was not deep in trouble as what it is now. Infact, for FY2013 1MDB posted a healthy accumulated net profit of RM 832 million.

The cash position of 1MDB then was also solid. Hence when 1MDB started to talk with TH for the said plot and another one, it was another ordinary business activity.

image

TH was in good financial position then and still now. The returns derived from investments which bore profits for TH has been on a steady incremental rate. This include properties abroad.

Hence, it is reflective in the annual dividends and bonus enjoyed by TH depositors for the past seven years.

image

That could only mean that TH BoD and investment advisory panel have been making sound business decisions and took calculated risks, which correspond to the healthy growth in net returns.

That was also even when palm oil prices dropped steeply in 2012 and has not gone up to a comfortable level in previous years.

The decision to take up 1MDB’s offer is purely business in nature and the plot has huge potential. Considering that the gross development cost (minus the land) for a land which obtained a plot ratio planning approval of 10.4:1, At RM 575 psf, the construction cost is calculated at RM 420 million.

The Tun Razak Exchange (TRX) master plan

It is valued that the said proposed building could brought upon RM 850 million in value. That is 13% return on investment per annum.

The rental income by 2018-9 could also fetch in the neighbourhood of RM 70-75 million per annum.

TH ought to be looking for more opportunities like this one presented by 1MDB, for the purpose of strategic investments. Azeez pronounced in the media conference that TH could go up to RM 5 billion in investment in real estate and property.

The Tun Razak Exchange (TRX) master plan

Even if TH allocate 40% of that for green-fields, the strategic pilgrim investment corporation should be able to acquire all these plots and hold them into land bank, for mid to long term development programs. This is because TH liquidity position is very healthy and all these could be acquired for cash.

RM 2 billion in premium and potentially high value green-fields with an average ROI of 12% per annum should translate to an additional quarter of million Ringgit attributable as dividends to the over 8 million TH depositors.

1MDB financial obligations

Nevermind the endless arguments and ramblings on why TH should be acquiring the parcel from 1MDB and why at that price.

The fact is that the opportunity for such a green-field  potential high value development was only opened for 1MDB and this deal for TH was below market price. This is on top that TH had its usual internal processes to evaluate the proposal and arrived to the decision to venture into this.

No different from other investment opportunities which now bore fruits, which include returns paid in cash through dividends.

It is obviously a missed opportunity, in a presentation of an incomplete business story laced with emotional overtone which is clearly designed for the masses to be riled and rise and do a political coup d’etat.

For the sake of the over 8 million depositors of Tabung Haji, let us pray that this missed opportunity is now offered to another Bumiputera corporation. Let it be a consortium of Bumiputera property developers and/or investors.

This agenda of political coup d’etat should not not be at the expense of the Bumiputera economic agenda. Otherwise, it is a sin of a different degree and dimension.

*Updated 1500hrs 11 May 2015

A very interested opinion by Dato’ Mohamed Salleh Said Keruak on TH’s acquisition of the said land and the opportunity that landed.

LEMBAGA TABUNG HAJI PAID A FAIR MARKET PRICE


May 11, 2015


Wee Ka Siong of MCA and Lim Kit Siang of DAP have referred to my Blog posting where I was alleged to have said that the Lembaga Tabung Haji land purchase from 1MDB was discussed at the Cabinet meeting. I did not say that. What I asked was whether the Cabinet ever discussed 1MDB during the weekly Cabinet meetings.

Tabung Haji has its own Board that runs the organisation and decides its policies. Not every operational matter of every organisation is discussed at the Cabinet. If not the Cabinet meetings would take days.

The issue seems to be regarding Tabung Haji paying 1MDB a discounted price of RM188.5 million for a plot of land at the Tun Razak Exchange (TRX) or RM2,774 per sq ft. What Tabung Haji paid was for converted land with title, planning approval and infrastructure. This is relatively cheap if compared to similar transactions concluded in the Golden Triangle.

Malaysian Resources Corporation Berhad (MRCB) bought the 1.8661 acre German Embassy land for RM259.15 million or RM3,188 per sq ft. This is about 6% higher than the market value of the land based on the appraisal conducted by CH Williams Talhar & Wong and Raine & Horne International Zaki & Partners.

SP Setia Bhd paid RM294.97million or RM2,200 per sq ft for the 1.22 ha British High Commission land in Jalan Ampang.

Oxley Holdings (M) Sdn Bhd, a unit of Singapore-based developer Oxley Holdings Ltd, purchased 1.3 ha in Jalan Ampang for RM446.7million or RM3,300 per sq ft. KSK Group Bhd paid RM568 million or RM3,299 per sq ft for a 1.6 ha parcel in Jalan Conlay.

The vendor was Suasana Simfoni Sdn Bhd, a subsidiary of Singapore-listed UOL Group Ltd.

If the issue is that Tabung Haji paid too much for the land or that it was a bad investment then this is not so, as the many other transactions around that area have proven. And the land deal was negotiated before 1MDB even became an issue and not after that.

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Published in: on May 9, 2015 at 23:59  Comments (42)