YNH Property ... Dec09

YNH Property Bhd is seeking legal recourse against Kuwait Finance House (M) Bhd (KFH) for backing out of a commitment to buy a 45-storey office tower worth RM920mil.

It had been notified by KFH in writing that the latter would “no longer be proceeding with the formalisation of the sale and purchase (S&P) agreement as per the terms and conditions of the offer letter dated Jan 11, 2008” for the en bloc purchase of Menara YNH, located along Jalan Sultan Ismail, Kuala Lumpur.

The deal “went sour” because KFH wanted to purchase the property at a lower price than initially agreed. It was all an issue of pricing. The property market has softened by about 20% since we entered into the agreement nearly two years ago (2008). KFH wanted to buy at a lower price while YNHP wanted to maintain the original value.

YNH was seeking legal advice from its lawyers and was confident of a positive outcome. An option is to sell the property to the highest bidder and claim the difference from KFH. The agreement is legally binding.

Preliminary earthworks had commenced at the project site and actual construction was expected to begin in a few months.

In was reported in August 2009 that the deal with KFH “is basically firmed up” although the S&P agreement had yet to be signed.

KFH offered to purchase a 50% interest in YNH Land Sdn Bhd’s proposed 45-storey office tower in early 2008. YNH Land is a unit of Kar Sin Bhd, which in turn is a wholly-owned subsidiary of YNH Property.

Meanwhile, two property players – one local and the other foreign – are believed to be keen on purchasing the proposed Menara YNHP from developer YNH Property Bhd.

It declined to name the parties. Speculation is that Singapore’s CapitaLand group could be one of the interested buyers.

It has started talks with the two new potential buyers for the office tower project and hopes to seal the S&P within 12 months. The price tag could be lower than what had been agreed upon with KFH.

It had informed Bursa that KFH will no longer proceed with the purchase of half of Menera YNH for RM920 million, in a deal signed on Jan 11, 2008. No reason was given, it might be KFH refused to sign the S&P despite bargaining for a lower price which was agreed by KFh.

Nevertheless, it is learnt that YNH is considering several options to finance the project. The first would be to build the office tower, at a later stage once it has found a buyer.

The second option is to develop and sell the retail component to raise the necessary funds to construct the entire project. The retail component has been sold for MR300 million, which would be enough to help YNH finance the entire project cost of about RM500 million.

In the second scenario, YNH could find the leftover portion of RM200 million via bank borrowings and cash. Hence it may not be in a hurry to find a buyer for the office tower.

The positive thing which can see from this turn of events is that the uncertainty of the sale of Menera YNH to KFH has finally drawn to a close. Going forward, management will be at liberty to deal with the building, that is whether to sell it to the next highest bidder or construct the building first to xtract better valuations two or three years from now.