KUALA LUMPUR: Melati Ehsan Holdings Bhd, which is controlled by businessman Tan Sri Yap Suan Chee with a 49.91% stake as at Feb 10, is unlikely to suffer heavy financial losses if the Selangor  government decides to pull the plug on the controversial RM1.62 billion redevelopment of PKNS Sports Complex in Kelana Jaya, Selangor.

That’s because the compensation for the project cancellation would be enough to offset the expected loss of revenue, a source close to the matter told The Edge Financial Daily.

“It’s a win-win situation for Melati Ehsan, either way. If it gets to do the project, it will be a boost to the construction firm’s earnings but it could take 10 years to complete the project,” the source said.

“But if it gets compensated for the cancellation, if could mean immediate extraordinary gains for the company,” the source added.

Melati Ehsan, in a joint venture (JV) with Selangor State Development Corp (PKNS), is proposing to redevelop the 34-year-old sports complex into a sports-themed mixed development which entails five 35-storey apartment blocks, two 15-storey business complexes, a performing arts centre and an integrated sporting hub.

The Edge Financial Daily on Feb 26 reported that the PKNS-Melati Ehsan JV had resubmitted its application to the Petaling Jaya City Council (MBPJ) for a development order (DO) to redevelop the 7.5ha site.

“If they (MBPJ) don’t accept the application, then under the National Land Code (NLC), MBPJ will have to acquire the land and pay PKNS compensation based on market value as the land is classified for commercial use,” a source was quoted as saying then.

However, on April 16, The Malaysian Insider reported that MBPJ had cancelled the application, saying it was against the law to do so on recreational space.

It was reported that MBPJ’s One Stop Centre committee had on June 8, 2012, rejected an earlier application from the PKNS-Melati Ehsan JV to redevelop the sports complex, saying it was not in line with the Petaling Jaya Local Plan Two (RTPJ2).

According to the source, the land is of commercial status based on the NCL and “thus, the council cannot reject it”.

“If MBPJ rejects the proposed redevelopment, than the council must buy the piece of land from PKNS that is to be valued at current market prices. PKNS will then use the money to compensate Melati Ehsan,” the source said.

Although the quantum of the compensation is not known, the source estimated that current market prices of land in the vicinity of PKNS Sports Complex is between RM1,300 per sq ft and RM1,500 per sq ft due to land scarcity in Petaling Jaya, compared with RM420 per sq ft at the time when the project was conceptualised.

“If the proposed project was valued at RM1.62 billion then, by now it has surely more than doubled. More time wasted means the project will incur higher costs,” the source said.

Based on the projected land value, PKNS may stand to gain between RM1 billion and RM1.2 billion from the sale of the land. PKNS owns the land that the sports complex currently sits on.

When contacted by The Edge Financial Daily, Kelana Jaya member of parliament Wong Chen said his office will continue to ask for more particulars from PKNS, such as the terms of the JV agreement with Melati Ehsan.

“The timing and the commercial rationale behind the deal need to be explained,” he said.

Melati Ehsan (fundamental: 1.8; valuation: 2) shares closed down 2.46% at RM1.19 last Friday, bringing a market capitalisation of RM142.33 million.

This article first appeared in The Edge Financial Daily, on April 27, 2015.