YNH reveals 2022 turnkey construction details, applies internal controls to address land deal disclosure oversight

• According to YNH's bourse filing on Friday, the TCA was entered into by YNH's wholly-owned subsidiary Kar Sin Bhd (KSB) and the landowner Great Wall Park Sdn Bhd (GWP) on June 20, 2016, to build a mixed residential and commercial development. Under the terms of the agreement, KSB paid GWP a security deposit of RM41.5 million, while the gross development value (GDV) of the project would be split 10% to GWP and 90% to KSB.

KUALA LUMPUR (Jan 19): YNH Property Bhd, in which prominent investor Datuk Dr Yu Kuan Chon is the largest shareholder with a 32.6% stake, shared details of a turnkey construction contract (TCA) in relation to a RM150 million land deal in Desa Sri Hartamas in response to a query from Bursa Malaysia.

According to YNH's bourse filing on Friday, the TCA was entered into by YNH's wholly-owned subsidiary Kar Sin Bhd (KSB) and the landowner Great Wall Park Sdn Bhd (GWP) on June 20, 2016, to build a mixed residential and commercial development. Under the terms of the agreement, KSB paid GWP a security deposit of RM41.5 million, while the gross development value (GDV) of the project would be split 10% to GWP and 90% to KSB.

On July 18, 2019, the parties then entered into a first supplemental agreement (SA) to vary the TCA, to increase the security deposit by RM148.5 million, and change KSB and GWP's entitlement of the project to 76% and 24% respectively of the GDV.

The security deposit was subsequently raised to RM239.5 million, while the profit sharing ratio was then amended to 28% of the GDV for GWP, and 72% of the GDV for KSB, in a subsequent SA dated March 26, 2020.

The TCA and SAs were eventually cancelled on April 1, 2022, and both parties agreed that RM150 million from the security deposit would be considered as KSB's full payment for the land purchase, whereas the remaining sum of RM89.5 million would be refunded by GWP to KSB by June 30, 2024.

KSB then entered into a sale and purchase agreement with Sunway Bhd's indirect unit Sunway Living Space Sdn Bhd to sell the land on May 16, 2023, for RM170 million.

YNH said the termination of the TCA has no financial impact on the group and instead, it was expected to earn a profit of RM20 million, which could potentially increase to RM70 million provided that Sunway obtains a new development order that increases the site's plot ratio from five to seven.

The group added that the only impact for YNH Property is the loss of the development project. But it did not provide the details of the gross development value of the said mixed development.

It also noted that the entry of a turnkey construction agreement is not subject to the approval of the group’s shareholders and/or any other relevant authorities.

Interestingly, YNH Property did not disclose the deal when it acquired the land from Great Wall Park Sdn Bhd (GWP) in April 2022, for RM150 million cash.

The property group only announced the land acquisition two years later this week — after the stock was pounded by heavy selling pressure — saying that the announcement serves to rectify its oversight pertaining to the proposed acquisition and is made in accordance with Chapter 10 of the Main Market Listing Requirements of Bursa Malaysia Securities Bhd.

Previously, YNH said it did not make any announcement pertaining to the termination of a turnkey construction agreement in April 2022 because "these are ordinary business of the company and to be consistent with the non-announcement of the turnkey construction agreement when the agreement was first entered into".

In a query made by Bursa Securities on Friday, the local bourse regulator asked YNH Property to ensure that an announcement on the turnkey construction agreement (together with the salient terms of the turnkey construction agreement agreement) and its subsequent termination together with details on the penalty incurred by the parties involved as well as the operational, business and financial impacts to KSB and/or YNH Property arising from the termination of the turnkey construction agreement) is made.

Bursa Securities also asked YNH Property to provide a statement to clarify whether the turnkey construction agreement or mixed development project is subject to the regulatory authorities’ queries and investigations regarding some joint venture and turnkey contracts entered by the group mentioned in YNH’s announcement dated Oct 27, 2023.

But, YNH Property said it is not aware of any queries or ongoing investigations on the turnkey construction agreement.

In addition, YNH said it had also implemented an internal control policy to govern all transactions, in a bid to rectify its oversight in not disclosing the Desa Sri Hartamas land deal and ensure that similar issues will not recur.

“This refined process is structured to undergo meticulous verification by senior management before progressing to the board for a final decision, thereby ensuring that past oversight issues will not recur. This improvement reflects the company's commitment to enhancing its internal controls and governance procedures.

“In light of the newly adopted internal policy, the company has opted not to appoint an external adviser. This decision aligns with the commitment to stringent internal controls and oversight, reinforcing the company's dedication to maintaining the integrity of its financial processes,” its filing read.  

Back in May 2023, YNH Property came under the spotlight after the group announced that KSB was disposing of the said land to Sunway Living Space for RM170 million cash.

The deal ran into issues as Bursa Securities raised questions over the transaction. Bursa had issued its first query on May 19, to which YNH replied on May 22. Bursa again issued another query on May 25, and YNH was required to provide its response within 24 hours. In its reply to the query, YNH acknowledged that the group had overlooked a few details, and would seek advice from the adviser to rectify the oversight.

Bursa issued another query on Jan 18, 2024, and required YNH property to provide the name of the appointed adviser to address the oversight and the date of the appointment of the adviser. 

In Oct 2023, its external auditor Baker Tilly Monteiro Heng PLT issued a qualified opinion on the group’s financial statements for the 18-month period ended June 30, 2023, related to joint venture and turnkey contracts for property development work.

Baker Tilly had expressed a “basis for qualified opinion” and said that an amount of RM1.1 billion had been included in YNH Property’s inventories regarding the contracts entered into with the JV parties or landowners.

An additional amount of RM97.5 million was paid to the landowners during the financial period. The land cost is subject to the agreed entitlement provided in the contract with the JV partners or landowners, the auditor’s report showed.

Also in the same month, YNH Property saw the resignation of two independent and non-executive directors, Ching Nye Mi @ Chieng Ngie Chay and Ding Ming Hea.

YNH property shares fell off a cliff ad the stock has fallen 79%, resulting in RM1.71 billion market capitalisation wiped off since Jan 5.

On Friday, the stock settled at another limit down of 85.5 sen, after it plummeted 36.5 sen or 29.92%, for a market capitalization of RM452 million.

Looking to buy a home? Sign up for EdgeProp START and get exclusive rewards and vouchers for ANY home purchase in Malaysia (primary or subsale)!