Is Capital City Property Sdn Bhd (CCPSB), the developer for the stalled Capital City mixed development in Tampoi, Johor seeking a white knight to finish off the project?
It is understood, the project has been put on hold as CCPSB, a unit of Singapore-listed Capital City Group Ltd could not obtain the required financing to carry on the development, and it owes creditors, including Gadang Holdings Bhd, about RM400 million collectively.
CCPSB had in March this year appointed a Judicial Management (JM), a qualified insolvency practitioner to manage the affairs, business and property of the company for six months to prevent it from being wound up.
It obtained a further six months extension up to March next year so the JM could come up with a court approved scheme of arrangement on how the company will repay its debts.
"The developer appointed the JM as it wants to revive the company and do a scheme of arrangement to resolve all the debt with the creditors. The project depends very much on the scheme or whether the developer can get a white knight," the source said.
Capital City, with a gross development value of RM1.8 billion, is sited on land owned by Achwell Property Sdn Bhd (APSB), a wholly-owned unit of Gadang.
APSB and CCPSB had entered into a joint venture agreement (JVA) for the project in December 2013. Gadang's entitlement from the project was a maximum of RM324 million.
In March 2019, Gadang had proposed to vary certain terms of the JVA, reducing its entitlement to RM250 million. Under the proposed variations, the revised remaining entitlement of RM100.21 million is to be satisfied via the contra of 408 retail units. In return, APSB would transfer the legal and beneficial ownership of the land to CCPSB so the later could use it to secure additional financing to complete the remainder of the project.
The two parties entered into a conditional settlement agreement (SA), a conditional put option agreement, and a conditional call option agreement, to incorporate the proposed variations.
However, the SA lapsed as CCPSB could not obtain the financing within the required time frame.
"The SA came up as CCPSB wanted Gadang to give them the land to charge so they could obtain financing. Now that the SA has lapsed the agreement will go back to the earlier JVA, where the entitlement for Gadang from this project is RM324 million," said a source familiar with the matter.
Up until March 21, 2019, CCPSB had paid RM149.79 million to APSB.
The source said there is a clause in the JVA which states that in the event of default by CCPSB, Gadang has the right to terminate the agreement or take over the development.
According to him, Gadang has no intention to take over the development as retail is not its core business.
Calls made to CCPSB went unanswered. It is understood, their sales office, located opposite the mall is no longer in operation there.
"The JVA is still valid. Based on the agreement, there is a deadline to complete the project within 66 months but that has surpassed the 66 months and to date, there is no negotiation or request for an extension from CCPSB. It is firmly believed that Gadang had issued the developer notice of default early this year," the source said.
Under the original plan, Capital City would have featured Capital City Mall, Johor Baru's largest mall, three office towers (with SoHo units) and two 15-storey hotel suites (Hilton Garden Inn and Planet Hotel).
According to previous reports, the two hotels were slated to open in 2019.
However, the progress of the development had been affected by the slowdown in the local property market.
The weak demand and the oversupply of office had led to CCPSB revising part of the project, like axing out the three office towers.
The new approved development plan for Capital City comprises the mall, three serviced apartments (Geo, Neo Reo) in place of the office towers, the Hilton Garden Inn hotel, and Capital Suites (replacing Planet Hotel).
It was reported in March 2019 that the entire development was expected to be completed after the original due date of February 25, 2020. To date, only the mall and a small percentage of Capital Suites were completed.
The mall, which had its soft opening on October 17, 2018, has been closed to the public since the end of February this year.
The 1.2 million square feet mall boasts of 1,602 retail units and had been home to the largest indoor theme park in Southeast Asia — MCM Studio — featuring Cartoon Planet, Movie Planet, and Music Planet.