Gamuda's subsidiary SRS Consortium to undertake development of Island A

KUALA LUMPUR (March 25): Gamuda Bhd's 60%-owned single purpose vehicle SRS Consortium Sdn Bhd will undertake the development of Island A under the Penang's Transportation Master Plan.

In a filing with Bursa Malaysia, Gamuda said Penang state government on March 25 accepted the terms of project development of Island A, whereby the project shall be implemented via a project development model through a joint venture with the state government.

It also said the project cost will be fully funded by the company through internally generated funds and bank borrowings.

A project developer company will be formed on a joint venture basis between the entity nominated by the Penang state government (PSG nominee) and a special purpose vehicle to be set up by SRS (SRS PD), on the basis of 30:70 respectively.

According to Gamuda, SRS PD shall fund all equity capital required and arrange for the necessary borrowings which may be required by the project developer to undertake and fulfil all its obligations under the project development.

The PSG nominee will have no liability to fund the project developer. All equity injection of the project developer shall be funded entirely by SRS PD on behalf of the PSG nominee.

In addition, SRS PD shall ensure that the PSG nominee shall have no obligation or liability to provide any collateral for the borrowings of the project developer.

Meanwhile, it also said the works shall be awarded to a turnkey contractor, in which the PSG nominee and another special purpose vehicle to be set up by SRS (SRS TC) would have 30% and 70% stakes.

The turnkey contractor will be awarded the works via a turnkey contract from the project developer.

"The turnkey contract shall award the works mutually identified by the (Penang state government) and the project developer as 'Phase 1 Reclamation' to Gamuda Engineering Sdn Bhd, a wholly-owned subsidiary of Gamuda, on a design and build lump sum contract basis whilst all other works (save for Phase 1 Reclamation) shall be tendered out by the TC.

"The final acreage of Phase 1 Reclamation and the completion date shall be mutually determined between the (Penang state government) and the project developer after taking into consideration the land use plan and rate of market absorption.

"Phase 2 Reclamation commencement shall be mutually agreed between the state government and the project developer," it added.

SRS TC shall fund all equity capital required and shall arrange for the necessary borrowings as may be required by the turnkey contractor to undertake and fulfil all its obligations under the contract.

The PSG nominee will also have no liability to fund the turnkey contractor. In addition, SRS TC shall ensure that the PSG nominee shall have no obligation or liability to provide any collateral for the borrowings of the turnkey contractor.

The turnkey contract price will comprise the aggregate of the lump sum price of Phase 1 Reclamation, the aggregate of the awarded prices of all other works, as well as a mutually agreed mark-up which shall take into consideration the tunkery contractor's overhead costs, payments to consultants and a fair and reasonable profit.

"The Phase 1 price shall be determined after verification by an independent consulting engineer to be appointed by the (Penang state government) and shall be no later than three months from the date of acceptance by the (Penang state government) of the proposal," it added.

Meanwhile, the project developer's fundamental roles and responsibilities in respect of Masterplanning Investors Marketing and Land Tenders are to call tenders for the land parcel sales and sell to the highest credible bidder and the land sale proceeds shall be applied to defray all of project developer's costs and liabilities, including but not limited to payments to the turnkey contractor, interest, fees and principal repayment to financiers, and all taxes.

To prevent an oversupply of land which may depress land prices, subsequent land reclamation for the next two islands or elsewhere in the state will only be carried out with the mutual agreement of both the Penang state government and SRS or at the end of 10 years from the commencement of works of the project development of Island A, whichever occurs first.

The only exception to this condition is if the reclamation involves under 50 acres of land, or if the reclamation has already been approved previously.

Whilst the proposal is not expected to have any material effect on the earnings of the Gamuda group for the financial year ending July 31, 2021, it is expected to contribute positively to the group's future earnings.

The execution of the supplemental agreement to the master agreement, the project development agreement, the shareholders agreement in respect of the project developer and the turnkey contractor, respectively, and the turnkey contract are not subject to the approval of the shareholders of Gamuda or any government authorities.

Trading of Gamuda shares is suspended today amid the release of the announcement. Yesterday, the stock closed down 1.33% or five sen to RM3.70, valuing it at RM9.3 billion.

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