Penang Chinese Chamber of Commerce questions PDC’s sale of 559-acre land to Umech Construction at ‘below market’ price

• The industrial land in BKIP2 was made available on the open market in May for RM80 per square foot, with parcels as small as five acres each.

KUALA LUMPUR (Oct 3): The Penang Chinese Chamber of Commerce (PCCC) has raised concern over a decision by Penang Development Corp (PDC) to sell 558.96 acres of land in Batu Kawan Industrial Park 2 (BKIP2) to Umech Construction Sdn Bhd for RM646.02 million, which the chamber claims significantly undervalues the land. Moreover, it questioned why the sale was not done through an open tender.

PCCC president Datuk Seri Hong Yeam Wah pointed out that as recently as May, the industrial land in BKIP2 was made available on the open market for RM80 per square foot, and in parcels as small as five acres each.

In this regard, he questioned whether the selling price of RM26.53 per square foot by PDC to the company was reasonable and whether the four-year payment term given by PDC is appropriate.

“Why was 558.96 acres of valuable industrial land sold to a private company without an open tender? When large tracts of industrial land are sold to private developers, has there been any research into the feasibility and rationality of the projects?” he questioned at a press conference on Tuesday. Also present was PCCC life honorary president Tan Sri Tan Kok Ping.

Although the plot of land was sold to Umech Construction, the joint development agreement was signed by PDC with another unit, Umech Land Sdn Bhd.

On Sept 27, Sunway Bhd in a statement announced that its 70% owned subsidiary, Umech Land Sdn Bhd, had entered into a joint development agreement with PDC to develop a 559-acre prime industrial land in Batu Kawan, Penang, in exchange for which PDC would receive a land entitlement worth RM646.02 million.

The land entitlement is to consist of a RM64.6 million deposit, with the remaining RM581.42 million to be paid via four installments. Both parties will collaborate on the development of the land, which will be known as “Batu Kawan Industrial Park 2”.

Hong pointed out that in the past, PDC controlled the sale of industrial land and interested parties had to apply directly to PDC and be put through a rigorous review process by PDC and Invest Penang.

“However, the industrial sites in BKIP2 are now being sold on the open market through intermediaries. This raises our concern, particularly considering the current scarcity of industrial land in Penang,” he emphasised.

Hong also raised concern over PDC’s practice of compulsorily acquiring private land through the Land Acquisition Act and then selling it to private developers for development. He suggested that PDC's practice be legally challenged by the original landowners.

“PDC, as the official agency of the state government, has a clear mission to make Penang a better place through sustainable socio-economic development. It should aspire for its development plans to serve as models for Penang and its people. If that’s the case, why is PDC unwilling to continue developing this industrial land?” he asked.

Did Umech Land report changes in ownership to relevant authorities?

In addition, Hong also questioned if changes in Umech Land’s ownership were reported to relevant authorities in advance as required.

He said Penang Chief Minister Chow Kon Yeow, who is also the chairman of PDC, replied to a letter from PCCC on Aug 25, stating that Umech Construction Sdn Bhd first expressed interest in the industrial development project at Expo Dubai 2020, citing financial support from Dubai.

However, it was Sunway Group that provided the funding. Hong said that information from the Companies Commission of Malaysia (SSM) showed that Sunway Group held a 70% equity stake in Umech Land as at Sept 25, 2023.

In light of this, Hong asked whether Umech Construction, the original buyer, and Umech Land — the entity that signed the contract with PDC on Sept 27 — had the same major shareholder, or if there had been changes in ownership that resulted in financial gain.

Similarly, Tan emphasised that for government-awarded projects, changes in a company’s shareholders or equity must be reported to relevant authorities in advance, and can only be implemented after approval.

“However, these processes appeared to have been bypassed. On the contrary, we directly learned about such equity changes in the news report,” Tan said.

Tan also expressed doubts over Umech Land’s financial capability to undertake such a significant industrial development, as a quick check by the chamber of commerce on CTOS (a credit reporting agency) revealed it had multiple liabilities.

In this regard, Tan called on Chow to provide a public explanation on the matter and address suspicions surrounding the transaction.

"At the same time, we also specifically request the Penang state government to reorganise the top management of the PDC to save the bureaucracy within the PDC, which has become entrenched, resulting in various malpractices that endanger the well-being of the government and the people,” he alleged.

Sunway involvement in Umech Land out of PDC’s knowledge

In a separate statement, in addressing the issue of Sunway Group's involvement as the majority shareholder of Umech Land, chief minister Chow claimed that the information was not previously known to PDC.

He said that subsequently, PDC had sent a letter to Umech Land, seeking further clarification.

He emphasised that, as per the terms of the Joint Venture Agreement, Umech Land is obligated to inform and obtain approval from PDC in the event of any changes in the company's shareholding structure. However, he said it should be noted that these changes occurred prior to the agreement's signing and were beyond PDC's control.

"Relevant details only came to light following the signing ceremony of the letter of agreement, through an announcement made by Sunway in the mass media. PDC has formally requested an explanation and further actions will be determined after a thorough examination of Umech Land's response, and presented to the PDC board meeting," stated Chow.

Chow further explained that the cash payments made by Umech Land to PDC were determined based on prevailing land prices in the area, taking into account its undeveloped status. Additionally, the four-year payment schedule was established to ensure profitability for PDC and to monitor the performance of Umech Land.

Chow also cited instances of direct land negotiations as common practice, citing examples such as Aspen Group's acquisition of a 245-acre land and Paramount Property Sdn Bhd's purchase of land for the construction of a university.

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