This article first appeared in The Edge Malaysia Weekly on January 22, 2024 - January 28, 2024

Development of the Lai Meng school land in the Kuala Lumpur city centre is finally going to kick off.

Having held the 113,963 sq ft parcel for more than a decade, Magna Prima Bhd has unveiled plans to partner with Golden Rainbow View Sdn Bhd on a mixed-use project with an estimated gross development value of RM1.2 billion.

Magna Prima bought the land, which was previously occupied by SJK (C) Lai Meng, for RM148.15 million in 2009 and was given the green light by the local authorities to proceed with the construction. However, after completing the deal in 2014, it missed the property boom that was driven by low interest rates, infrastructure projects and government incentives.

Magna Prima says it had been re-evaluating its options on what to do with the land over the years, including the possibility of disposing of it. There was also interest to acquire the land in June 2022 at an indicative price of US$69 million (then RM303.6 million), but the party did not engage further on the expression of interest.

The latest proposed joint development will allow the property developer to unlock and monetise the land at a sum that represents a premium of RM201.8 million to the initial cost of investment and a premium of 16.67% to the market value.

Due to the high capital commitment, the company does not intend to develop the land on its own. Therefore, it is expected to derive a proforma loss from the joint development, arising from the reversal of the fair value gain recognised by the group previously to reflect the original cost of investment.

As at end-September 2023, Magna Prima was in a net debt position of RM59.16 million with gross borrowings of RM60.3 million.

It looks like the company has no choice but to incur the expected proforma loss in order to realise the value of the land to tap the next property cycle. Through this joint venture, it will be able to generate additional cash flow, which can then be redeployed to its existing and future projects, and save on interest cost on the borrowings taken with the land as collateral. Hopefully, Magna Prima will get it right this time.

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