This article first appeared in The Edge Malaysia Weekly on October 16, 2023 - October 22, 2023

WHAT initially appeared to be an innocuous land deal has placed state development agency Penang Development Corp (PDC) and local conglomerate Sunway Bhd under intense scrutiny.

On Sept 27, Sunway announced that its 70%-owned unit Umech Land Sdn Bhd had inked a joint development agreement (JDA) with PDC to co-develop a 558.96-acre parcel in Byram, Seberang Perai Selatan, near Batu Kawan.

While Sunway appears to have secured a good deal via Umech Land to develop a new industrial park in Batu Kawan, which has proved to be a highly sought-after location by local and foreign investors, how the conglomerate came into the picture has piqued curiosity and led to a great deal of controversy.

In fact, over the past two weeks the land deal ignited a firestorm in the corporate and investment community, inevitably prompting politicians to jump on board as well.

Serious questions are emerging. Why did PDC choose Umech Construction Sdn Bhd, which was said to be financially backed by Dubai investors as its original partner, only to subsequently sign the JDA with Umech Land, a company Sunway bought a controlling stake in just two days before the deal with PDC was signed?

There appears to be increasing disquiet among Penangites over the perceived lack of transparency and governance in the way the state government and PDC handled the Umech deal.

Concerns raised include whether the deal was made so the asset could be flipped and whether PDC sold the state-owned land to a private developer at below market value without an open tender. Questions being asked include why Sunway entered through the backdoor just two days before the deal was signed, when it entered into discussions with Umech Land and when PDC learnt of this. Chief Minister Chow Kon Yeow has been quoted as saying that he was not aware Sunway was involved until it announced the deal to Bursa.

This episode has not gone unnoticed by the 300 multinational corporations (MNCs) that call Penang home and it presents Chow with one of the most significant crises in his five-year tenure.

The issue arose on Sept 27, when Sunway announced Umech Land’s mega industrial project, dubbed Batu Kawan Industrial Park 2 (BKIP2), with an estimated gross development value (GDV) of at least RM3.5 billion over eight years.

According to the JDA, as proprietor of the land, PDC will be entitled to a land entitlement of RM646.02 million — an amount “derived from negotiations” between Umech Land and the state development arm based on market prices in the vicinity.

It should be pointed out that all monies, proceeds and profits derived from BKIP2 — after deducting the entitlement payable to PDC and covering all the development costs — will belong to Umech Land, which is 70%-controlled by Sunway’s wholly-owned subsidiary Sunway Bukit Gambier Sdn Bhd. The remaining 30% stake in Umech Land is held by Karen Cheng Pui Kwan (21%) and Nathaniel Rajakumar (9%).

Now, what is interesting to note is that PDC itself had announced on Sept 21 on its official Facebook page that it was collaborating with Umech Land on a RM3.5 billion industrial park project in Byram. The photo featured on PDC’s social media showed Cheng and Nathaniel having had a meeting with the Yang di-Pertua Negeri of Penang Tun Ahmad Fuzi Abdul Razak and PDC CEO Datuk Aziz Bakar.

On the same day, Sunway put three representatives on the board of Umech Land, namely company directors Chong Sau Min, Calvin Ho Ch’an Hin and Fong Choon Fuoi.

Four days later, on Sept 25, Sunway injected RM23.33 million into Umech Land to acquire a 70% stake in the company, hence diluting the shareholding of Cheng and Nathaniel to 21% and 9% respectively. Before Sunway’s cash injection, Umech Land was owned 70:30 by Cheng and Nathaniel.

In other words, Sunway only emerged in Umech Land a few days before the company officially signed the JDA with PDC on Sept 27. Is it possible that the conglomerate had a contractual agreement to buy into Umech Land on Sept 21, the day its representatives joined the Umech Land board?

Everything appears to have taken place in the blink of an eye from the time of the meeting between Cheng, Nathaniel, Ahmad Fuzi and Aziz Bakar to Sunway coming into the picture.

On Oct 3, Penang Chinese Chamber of Commerce (PCCC) president Datuk Seri Hong Yeam Wah and life honorary president Tan Sri Tan Kok Ping called a press conference to question whether the change in Umech Land’s ownership was reported to the relevant authorities in advance of the signing of the JDA as required.

Here’s when things begin to get even more complicated as PCCC revealed that PDC had initially intended to sell the land in question to Umech Construction, which is also controlled 70:30 by Cheng and Nathaniel.

In corporate circles, executives are asking what happened during PDC’s negotiations with Umech Construction and why the state development agency decided to strike a deal with Umech Land instead, even though the deal would ultimately be with Sunway. Furthermore, what became of the purported Middle East funding?

Responding to PCCC’s concerns, Chow — who is also PDC chairman — explained that Umech Construction first expressed interest in the industrial park project at Expo Dubai 2020, citing financial support from Dubai. He said PDC wanted to enter into a joint venture to develop an industrial park but no one expressed any interest as the land was located next to the Pulau Burung landfill.

In an Oct 3 statement, Chow elaborated that a “committee” was set up on Nov 28 last year to examine Umech Construction’s proposal to participate in the industrial park project. The committee included Prof Dr P Ramasamy Palanisamy, then deputy chief minister of Penang II, and Datuk Seri Lee Kah Choon, then PDC director and special investment adviser to the chief minister of Penang.

As a result of the committee’s findings, the proposed collaboration with Umech Construction was presented for approval at the PDC board meeting on Feb 9 this year, he said.

But in a joint statement on Oct 9, Ramasamy and Lee said the meeting held on Nov 28 was not a “due diligence” meeting to evaluate PDC’s land deal with Umech Construction. They also said they found Chow’s explanation to be “misleading, unfair and causes harm to our professional reputation”.

On the day Ramasamy and Lee made the joint statement, Chow revealed that he had on Sept 26 — a day before PDC signed the JDA with Umech Land — informed Lee that he had been replaced as PDC director. Chow said Lee tendered his letter of resignation as his special investment adviser on Oct 2.

Chow insisted that due diligence had been conducted over the land sale to Umech Construction and that the PDC board had approved the transaction “in principle” based on all the conditions presented in the Feb 9 meeting.

A check on PDC’s website shows that, apart from Chow and Lee (who has been replaced), there are currently 10 other board members, namely, Datuk Seri Sundarajoo Somu, Datuk Dr Mohamad Abd Hamid, Datuk Mohd Sayuthi Bakar, Jagdeep Singh Deo Karpal Singh, Goh Choon Aik, Zabidah Safar, Zairil Khir Johari, Mohd Sukri Mat Jusoh, Nor Hasnah Badroddin and Norul Farhah Mustapha.

When contacted by The Edge, Chow and Sunway had no comment for this article, while questions sent to Umech Land and PDC via email remained unanswered at press time.

It is worth noting that Umech Construction has a paid-up capital of RM10 million and a gearing ratio of 215% as at Dec 31, 2021. Given that it has not been very profitable (see table on its financials), what led PDC to believe the company had the financing capability to fulfil the JDA? Was another party put up as the financier?

As for Umech Land, its financials are not any better. It is very much a dormant company with zero revenue and has reported minimal losses over the years. More importantly, it was never evaluated by PDC for suitability as a partner.

Now, given the fact that PDC would have known Umech Land or Umech Construction simply does not have the financial resources to execute a mega project on its own, would it not have been a more direct approach for PDC to team up with Sunway directly? After all, the conglomerate had already come into the picture before the JDA was signed on Sept 27. Why did this deal have to involve Umech Land?

Some have pointed out that the net effect of this arrangement in executing the JDA with Umech Land, and with Sunway emerging as a subsequent shareholder, appears to have benefited Cheng and Nathaniel, as well as Sunway.

A source familiar with the matter tells The Edge that “only a few people” were aware of the deal with Umech Land.

“First, they used Umech Construction to come and talk to PDC. All the while, they had been talking about Umech Construction. But suddenly, they switched to Umech Land. And out of nowhere, Sunway came in. Most people at PDC were only aware of the deal just before the signing ceremony on Sept 27,” he says.

“The first question I asked myself is: How did Umech Land invite Sunway to subscribe for its new shares? How did it open up and say, ‘Hey, we have this number of shares. Come and subscribe’? Normally, it doesn’t make sense.

“Umech Land must have something to offer to Sunway. Otherwise, why would Sunway pay RM23.33 million to take up a 70% stake in Umech Land? Surely, they knew Umech Land would be securing the land deal.”

The source also points out that if Sunway, with its strong track record in the property development and construction industry, had directly approached PDC, the state development arm would have been more than happy to discuss and negotiate a deal with the conglomerate.

“So, why does Sunway want to do this in a backdoor way? Why is it using a vehicle that is totally not theirs to get into this deal? Is it because this is such a good deal that it just cannot say no?

“If you look at the signing date and announcement, all these happened in a very short period, as if they just wanted to do a quick deal to get all these things sorted out. Why do they want to camouflage this?”

Another source tells The Edge that the PDC board was never formally informed of the Umech Land deal until Sunway announced it on Sept 27.

“I think some people are misrepresenting the board. If I may put it very bluntly, the PDC board has been misled to think they are still talking with Umech Construction. And then, by allowing Sunway to come into Umech Land, it raises more questions, one after the other.

“Technically, the PDC board has not approved the deal with Umech Land. They claimed both Umech Construction and Umech Land are the same because they have the same shareholders. Apparently, this explanation was accepted by the exco.”

Chow, who has been under immense pressure lately, said on Oct 11 that the PDC board would discuss and address all questions arising from the BKIP2 land sale in the following week.

Given its huge success with Batu Kawan Industrial Park 1 (BKIP1) and Bandar Cassia Technology Park (BCTP), many would argue that PDC does not need to partner with anyone — not Umech Construction, Umech Land, or even Sunway for that matter.

“PDC has an ace up its sleeve. There is the land acquisition law, so you have to be fair to the people. You have to build up your core business for the good of Penangites,” says an industry observer from Penang.

He opines that PDC doesn’t need any party to co-develop the land.

“PDC was a developer. It has built nine industrial parks spanning 6,000 acres over the years. Penang started industrial development when no other states were doing so. Today, we are going in reverse,” he points out.

“When we open all these private industrial parks, you are actually killing Penang and you are killing PDC, which is supposed to have a ‘monopoly’ as the state agency to do good by dictating prices. Now, you are going to the private sector and you are allowing them to dictate prices.”

He is of the view that the state is “getting into a mess now” and may have problems promoting investments in the future.

“You allow all these private people to come in and run the industrial park. What do they want? They just want to carve it out and sell it and then they can quickly get the money and leave.

“If PDC is the master developer, it could say no to companies that don’t add value to Penang’s ecosystem and it could offer discounts to attract good investors. In the private sector, they would [as they should] prioritise selling their industrial properties or industrial land because they are concerned about cost and profitability.”

The PDC board, which Chow chairs, will have plenty to think about when it meets to try and resolve the problem one way or another. 

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