Questions remain even though Umech Land deal scrapped — PCCC

• PCCC president Datuk Seri Hong Yeam Wah said that the initial approval for Umech Land by the “PDC board of directors” — instead of Umech Construction Sdn Bhd as the initial party to the contract — remains unexplained.

KUALA LUMPUR (Oct 18): Even though the RM646.02 million land deal between Penang Development Corp (PDC) and Umech Land Sdn Bhd — a 70%-owned subsidiary of Sunway Bhd — has been cancelled, the state needs to explain how the controversial agreement came to be signed, the Penang Chinese Chamber of Commerce (PCCC) insisted on Wednesday.

PCCC president Datuk Seri Hong Yeam Wah said that the initial approval for Umech Land by the “PDC board of directors” — instead of Umech Construction Sdn Bhd as the initial party to the contract — remains unexplained.

“Technically, there was no approval from the board of directors. Is this a mistake that was allowed to happen? That means it is a very serious question on the procedure,” he said at a press conference, stressing that the sale of PDC land required the approval of the board which, he alleged, “did not happen”.

On Tuesday, Penang Chief Minister and PDC chairman Chow Kon Yeow announced that the deal was scrapped, following repeated calls by the PCCC and former government leaders for details of the sale to be revealed, given its lack of transparency.

PDC said it would call for a request for proposal (RFP) in due course for collaboration in the development of the 558.96-acre (226.20-hectare) Batu Kawan Industrial Park 2 (BKIP2) land in the Seberang Perai Selatan district.

In announcing the cancellation, Chow said it was a result of Umech Land’s failure to “inform and obtain official PDC approval” over a change in the majority equity structure of the company, which was “serious and unacceptable”.

Chow was referring to the entry of Sunway as a majority shareholder of Umech Land after injecting RM23.33 million into the company just two days before a joint development agreement was signed with PDC to develop the land. This led to a change of the controlling party and project lead, and was the main reason given for the deal’s termination.

However, the state found that the selection process of Umech Land, including the determination of cash contributions and payment schedule to PDC, was transparent and within PDC’s policy.

It also found that the collaboration with Umech Land was “reasonable”, and “gives a positive impact” on PDC's cash flow.

In a statement read by Hong on Wednesday, the PCCC welcomed the termination, which it said was “a bit delayed”, but not too late for PDC to remedy the situation.

The PCCC said that Sunway was an “innocent party” in the deal, and that the state should clearly identify the “correct and proper” party that had entered the contract, as it pointed out that even up to August this year, as per the state government’s reply to the PCCC, Umech Construction had been held out to be the collaborating party, and not Umech Land.

Hong added that the state’s reply in August also stated that Umech Construction’s funds would come from Dubai, yet the final agreement was concluded with Umech Land.

“It's two totally different companies, and they said Umech Construction is strong in finance. If you check with CTOS, Umech Construction has a paid-up capital of RM10 million and a gearing ratio of 215%. Furthermore, Umech Land is a dormant company — five years, zero turnover.

“In this land sale turmoil…PDC was negotiating with Umech Construction, and the PDC board only had knowledge that the buyer was Umech Construction. What went wrong, which caused the board of directors to be misled and be in the dark as to the real identity of the real party that signed the land deal?” he asked.

The “so-called due diligence” on the land sale was “frivolous” — if not, the eleventh-hour change in controlling shareholder would not have occurred — he said.

He suggested that PDC engage external consultants to conduct the due diligence if it does not have the internal resources to do it.

“Don’t repeat the [same] mistake…this is to ensure that only a company with financial ability and a track record be appointed to carry out such a huge development project, more so when this is an industrial park project.”

Commenting on the RFP and the need for complete transparency, the chamber proposed that instead of roping in the private sector, PDC undertake the development of the state’s 10th industrial park using its own expertise and track record over the last 50 years.

“Actually, there’s no need to call for a private joint venture for this. If you let the private sector in, the land price will become unstable. It will keep rising because it's not controlled, whereas PDC can control the land price.

“It's good for investors coming in, and Penang has a shortage of land. If you don't control it, the price will keep going up. Investors will find that [land value] is not so competitive compared with other countries. As such, PDC should not privatise or outsource [the development] to external parties,” he asserted.

The PCCC also suggested a reshuffle of PDC's management, but insisted that it does not have an agenda, nor is it targeting any politician or company in highlighting the issue.

“The land fiasco was an eye-opener, exposing the arrogance of the management, which has seen the executive powers ride roughshod over the board of directors of PDC and the state government."

He said the absence of transparency and corporate governance had "seriously affected the image and reputation of PDC", adding that a management reshuffle would be in line with the Penang government’s CAT (competence, accountability and transparency) principle, which is also its tagline.

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