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10/08/2015

AFFIN BANK BUYS TRX LAND FOR $255 MILLION @ RM4,645 PER SQ FT? IS THIS PIE-IN-THE-SKY VALUATION AGAIN?

by donald trump, donplaypuks® intrepid correspondent for pie-in-the-sky land valuations affairs

The announcement by Affin Bank today that it had acquired a 0.51 hectare parcel of land at the Tun Razak Exchange (TRX) development is astounding news. CLICK HERE for the press announcement.

The 70-acre TRX land bank is of course owned by Kuala Lumpur International Financial District SDn. Bhd., (KLIFD) which in turn is a wholly owned subsidiary of 1MDB.

The math for per sq. ft. (psf) cost of land works out as follows:

1. Price of land = $255 million.
2. 1 hectare = 2.47105 acres.
3. 0.51 hectare = 2.47105 x 0.51 = 1.26 acres.
4. 1 acre = 43,560 sq. ft. 
5. 0.51 hectare  = 43,560 x 1.26 acres = 54,896 sq. ft.
6. Price paid per sq. ft. = $255,000,000/54,896 = $4,645 psf.

The sale in May 2015 of 1.56 acres of TRX land to Tabung Haji for $189 million @ $2,774 psf raised a stink for more reasons than one, but particularly, the valuation.

Now we have an even greater phenomenally incredible valuation @ 67% more than the price determined and paid by Tabung Haji, just 2 months ago!!??

What the hell is going on?

Once again, that name is in the thick of things - Tan Sri Lodin Wok who is Chairman of 1MDB as well as a director of Affin Bank. 

Tabung Haji and Boustead (where Lodin is Deputy Chairman & MD) own 55% of Affin, while Tabung Haji owns 57% of Boustead!! What an incestuous corporate set-up of GLC's!

Of course, Affin Bank's announcement mentions that Tan Sri Lodin Wok did not participate in the decision making. China Wall and all that!

But, in the current state of affairs where a sitting PM claims that $2.6 billion TT'd from abroad to his personal bank a/c was a "donation" and that he did not personally benefit from it, does anyone believe in these statements and denials? 

Even assuming the price of $2,774 psf paid by Tabung Haji in May for their 1.56 acres of TRX land is fair, which we all agree is grossly inflated anyway, the price for Affin Bank's 1.26 acres should have been only about, say, $155 million. 

So, there is an excess payment of $100 million ($255 -155 million)!!!!

Some claim this is for the increased plot ration of 16, which is a load of cobblers. With its Chairman Lodin's direct line to PM Najib and City Hall, Affin can apply for the increased plot ration on its own, at the cost of only making a formal application and architect's fees. That will come nowhere near $100 million.

So, should the MACC be called in with state-owned land prices sky-rocketing stratospherically in dealings between GLC's and 1MDB? Are these really genuine arm's length transactions and fair market value land prices?

Equally important is the question of the undue influence of "unseen hands" in concocting higher and higher land prices not transacted in the city, to bankroll 1MDB's acute cashflow deficit and inability to service its annual debt interest cost of about $2.5 billion!! 

Is 1MDB due to make a $255 million interest payment in about 90 day's time. Is that how the land price was arrived at?

Does anyone really buy the statement that Affin has been negotiating with 1MDB for 3 years to conclude the deal at a record high price? That 2 GLC's needed 3 years to reach agreement so that Affin could buy land at the highest price in Malaysia? When 2 years ago Affin could have bought the land at about $1,000-1500 psf?

Some tend to think that no harm is done since Affin will be able to generate profits and create work for the building industry.

This is a false arguement, as it was with Tabung Haji's purchase. If parties are suspected of colluding to jack up land prices artificially to facilitate 1 party's urgent need for cash, that is a crime, twice over!

Twice over, because the party that buys at inflated prices will not be able to maximise its profits for the benefit of its shareholders, many of whom are soldiers, sailors, airforce crew, police personnel etc who defend our country and maintain law and order, and the haj brigade from the Malay heartland comprising farmers, fishermen, labourers, estate workers, clerks, retired pensioners on their last legs and the like who save every penny to make that one supremely important pilgrimage of their lives! 

Have the Chairman, CEO and Board of Directors of these GLC's forgotten that they owe a fiduciary duty, AMANAH, to their brethren?  To not cheat and rob them with fancy words, glossy brochures and $80 million APCO-inspired PR doublespeak?

Note too that the formal press announcement makes no mention of the price per square foot ($4,645) of land AT ALL!! This is deliberate as 1MDB knows that a comparison will be made by an already seething and furious public with the Tabung Haji purchase mess at $2,774 psf.

Next, there is the unusual announcement of price per gross floor area @ $310 psf, which is a red herring. Of course, with high-rise buildings, the higher you go, the cheaper the psf construction cost, and the higher the profit. But, as I have already said, Affin does not need to pay a whacking premium of $100 million to 1MDB for increased plot ratio; it can save a hundred million ringgit, and achieve it alone. In fact, it could go for a plot ration of 20 and achieve even higher profits without paying 1MDB 1 cent for it!!

The best comparison for barren land, apples to apples, is the ringgit per sq. ft. statistic, together with whether the land status is unconverted agricultural, commercial etc. No one can predict with any certainty construction cost and per sq. ft, floor area cost 1 year from now, especially with the ringgit plunging from $3.10 to $4 vs the US$ and $6.28 vs the British pound!

This is conduct bordering on treason by desperate men who do not have the gumption to stand up to a desperate, rogue Prime Minister. The Prime Minister and Minister of Finance, Najib, and the governor of Bank Negara, Zeti, should both resign or be booted out immediately for this financial mismanagement and fiasco of gargantuan proportions.

Or, has someone made a boo-boo with the numbers? 

Naah, I don't think so. 

The jaw-dropping numbers are, sadly, for real.


 Donplaypuks® with pie-in-the-sky land valuations, man! 

15 comments:

hasan said...

It comes with an approved plot ratio of 15.2 which gives you a gross floor area of more that 820,000 square feet which translates to about RM300+ per square feet. It is ok lah tu bro.. what's wrong with you?

hasan said...

Lets thrown in a construction cost of RM600 per square feet and RM100-00 per square feet in marketing cost, thus, Affin Bank's total cost would be about RM1,000-00 per square feet. If Affin Bank later sold the completed building at only RM2,500-00 per square feet, how much would Affin Bank's profit be? What about the job opportunities created, economic activities and vibrancy? You can replicate that business model on the rest of the TRX development.

elizabeth said...

Poor Affin, have to pay such a hefty price, just so that 1MDB can boast and say that LCTH got their land super cheap. The report says, this purchase was the result of a 3 year negotiation. This is utter rubbish, because nobody take so long to negotiate a purchase knowing that the land cost would only get more expensive... To me, either this story is a big fat lie, or that affin bank is utterly incompetent and not able to close a deal properly.

Donplaypuks® said...

Hasan

This shows you know very little about property prices or development. The psf land price is dictated to by market forces and recently transacted prices. It is the buyer who applies for the plot ratio and not the seller. Also, plot ratios in the KLCC district are nowadays fairly standard at +10. KLCC was an exception at about 18-20 so that an iconic 88-twin tower skyskraper could be built. How high you can go depends on the connections you have with city hall.

The gross built-up area of 820,000 sf has nothing to do with the seller's price of %4,645 psf whish is 67% more than what Tabung Haji paid in May 2015. So, how can there be such an astronomical price rise in the space of 2 months if this is really a genuine arm's length transaction?

The fact that Affin can realise profit does not mean that they should pay any ridiculous price the seller asks for. If your objective and duty to the shareholders, especially since Affin's main shareholders are those saving to go on the Haj, is to MAXIMISE profit, you don't pay over the odds to bailout 1MDB!!

hasan said...

Bro... The seller has done everything for the buyer. The buyer just buy, come in and construct the building.

If I have a plot of land and I applied for a higher plot ratio to develop it and the development plan is approved by authority, then I can sell it for a higher price.

For example, if I have a piece of agricultural land, I have it converted for commercial and residential purpose with a plot ratio of say 8, I can sell my land at a higher price and make more profit before even constructing anything.

OTOH, if I do not do anything but just to sell the land as is and where is basis than the price of my land would be very very low. The buyer then must do the conversion and submit a development plan for commercial and residential purposes to the authority and for a plot ratio of as high as the buyer can get from authority, in which the authority may or may not approved.

Donplaypuks® said...

Affin is a listed plc. It does not need to pay KLIFD over the odds for a higher plot ratio. It has enough muscle and connections (Lodin Wok etc.) to apply to DBKL for the increased plot ratio at a fraction of the inflated value it has paid KLIFD/TRX.

Similarly Tabung Haji.

Besides, it's pure bull-shit that it takes 3 years to negotiate this deal between 2 GLC's controlled by the Govt. If they had closed the deal earlier, they might have got the land at about $1,000 psf!!

hasan said...

I have to disagree with you.

This is strictly a business proposal and a commercial decision between a willing seller and willing buyer.

As I see it, this is a good business deal. If I have that millions I would invest too. Moreover, the valuation has been done by a professional valuer. It is all above board.

I am sorry to say honestly and sincerely that it is a good deal.Be it to TH or Affin Bank or to any other buyers.

Anonymous said...

I sympathies with the soldiers who had sacrifice their life for the nation and now looks like their life-savings are being used by crooks. I do not know if this Wak Lodin has any conscience at all. Bila dah makan duit haram, hati pun jadi hitam.

paktam said...

And yet TH cannot find buyer for the land though as claimed has HUGH potential.

paktam said...

And yet TH cannot find buyer for the land though as claimed has HUGH potential.

hasan said...

TH should keep and develop the land. It will never go wrong. It is a win win for all the stakeholders. There will be plentiful of job opportunities for everybody. It will be good for the economy and the country.

But on the OTOH, it is your choice to condemn and criticize the aforesaid business model and to want it to be a failure.

I have to say it now with conviction that there is nothing wrong with the business model. Perhaps, it is overgeared, and that's about it. So, just bring the gearing down, and that's it.

Donplaypuks® said...

Notice that lately all these stratospherically priced land transactions are taking place among GLC's controlled by you know who. But, other lLc's are not involved.

Of course, we all know that colluding to profiteer is a crime, don't we? Especially, if it masks a bailout?

hasan said...

We are still far away from the bailout stage.

It is not masking. It is a straightforward equity and debt restructuring exercise. Business outlook remains so encouraging good lah. Why do you want it to fail?

desiderata said...

DEar DPP thanks for a well calculated piece; maketh DESi's task of essaying for jewels on 1MDB scandal EASIER 2X over. REmember that last time 1IMDB HAd to rush to pay for RM3.6bln demanded by Consortium of banks led by DEutche BANk, WHo asked for the one-year loan PREMATUREDLY BY THREE MONTHS! (DEutche and other GERman banks must have doene a scrutiny of 1MDB financials, and they RUSHED FOR THE EXIT DOOR> NOW a patriotic bank like AFFIN IS doing NATional SERvice for ah!JibGOr;( MACC MUSt investigate this latest scandal. EVErything linked with 1MDB STINKS TO highheavens, or izzit SAudilowesthell?!--DESi, knottyaSsusual

PS: MAY I Borrow thy post eh! COMe to DE MIAng KOner and I'll bye ye endless rounds of tehtari!

Donplaypuks® said...

Desi

Plesae borrow as you like!

Cheers!