CONTRARY to the impression that was previously given to the media as well as in documents to promote the RM600 billion Forest City project, the Sultan of Johor — and not state agency Kumpulan Prasarana Rakyat Johor (KPRJ) — is the partner of China’s Country Garden Holdings Ltd.

The venture, which involves a massive land reclamation project in the Straits of Johor, is being undertaken by Country Garden Pacific View Sdn Bhd (CGPV). According to the promoters of the project, the shareholders of CGPV are Country Garden Holdings (60%) and KPRJ via Esplanade Danga 88 Sdn Bhd (40%).

But checks with the Companies Commission of Malaysia (CCM) show otherwise.

CCM records show that Sultan Ibrahim is the single largest shareholder in Esplanade with 1,998 shares, which is equivalent to a 99.9% stake. Meanwhile, former directors Amutha Vasundeven and Rabindranah Nandy each hold one share.

As of now, KPRJ has no shares in Esplanade.

Esplanade was incorporated on Aug 28, 2013, with an initial authorised capital of RM400,000 and total issued and paid-up capital of RM200,000. At the time, Amutha and Rabindranah were appointed as company directors and both were issued with one share each.

Sultan Ibrahim surfaced in Esplanade a month later, following the company’s allotment of 1,998 shares to him. Sultan Ibrahim then became a director of Esplanade together with Datuk Md Othman Yusof and Datuk Daing A Malek Daing A Rahaman, two state Umno figures with close ties to the Johor royal family.

Amutha and Rabindranah then resigned as directors, but both still hold one ordinary share each in the company.

As for KPRJ, it only emerged in Esplanade 10 days after the Johor Sultan was made director of the company, but not as a shareholder.

Instead, KPRJ was issued with 80,000 redeemable convertible preference shares (RCPS) with a nominal value of one sen each in Esplanade on Oct 17, 2013. Meanwhile, 255,600 RCPS were issued to Sultan Ibrahim and 62,400 to Daing. The total count of RCPS amounted to 398,000.

A day before the RCPS were issued, Esplanade’s articles of association was amended to allow the issuance of RCPS. It also allowed the same voting rights for RCPS as ordinary shares, something that is unusual as RCPS normally do not have voting rights.

Instead of 40% as had always been stated by the promoters, Esplanade holds only 34% equity interest in CGPV while Country Garden Holdings holds the remaining 66%.

This would mean that even upon the conversion of all its RCPS, KPRJ would only have an effective interest of 6.8% in CGPV.

On the other hand, on conversion of his RCPS, Sultan Ibrahim would hold a 21.9% effective stake in CGPV after taking into account his 1,998 ordinary shares in Esplanade, while Daing would have some 5.3% equity interest in CGPV.

Now with the joint-venture partners of CGPV out in the open, the next issue to bring into question is the financing of the mega development project that involves the reclamation of 4,011 acres. The Forest City development is expected to cost some RM310 billion, after taking into account land and construction cost.

Typically, a development project would only be able to receive bank financing of up to 50%. However, there are some development projects where banks are willing to provide up to 70% in borrowings. If CGPV is able to get financing of up to 70%, it still needs to fork out some RM93 billion for the project. Currently, CGPV’s authorised capital is only RM400,000.

While the initial cost looks like a massive sum, the potential profit is astronomical too, based on the project’s RM600 billion gross development value. The developer is expected to reap a whopping RM290 billion over 30 years, should the project take off according to plan.

A back-of-the-envelope calculation shows that Sultan Ibrahim would stand to gain RM63 billion from this project given his effective equity interest of 21.9%, while KPRJ could get up to RM19 billion, provided the state-owned company converts all the preference shares into ordinary shares.

However, the project has come under heavy scrutiny. The massive development, which is not part of the Iskandar Malaysia master plan, has been stalled temporarily by the federal Department of Environment (DoE) due to concerns expressed by various groups, including the Singapore government. The stop-work order on the project was enforced on June 17.

The project was given the green light by the state DoE in January this year, despite the absence of the environmental impact assessment report, which is a norm for development projects. Given the go-ahead, the developers started the reclamation works early this year. Now, these works have halted pending the final decision from the federal DoE.

Nevertheless, CGPV got a cheap deal for the waterfront land. Even if the federal government stops the project, the developer would still have the 877 acres of existing land along the Straits of Johor, which it purchased for RM5.90 per sq ft, according to industry sources.

When all is said and done, many eyes are watching whether anyone can stop or force a major downscaling of the project given that Sultan Ibrahim has such a substantial interest in it.

This article first appeared in The Edge Malaysia Weekly, on September 22-28, 2014.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.