By THE STAR
EASTERN and Oriental Bhd’s (E&O) development of the Seri Tanjung Pinang project showcases that Malaysian developers have what it takes to undertake unique and challenging projects on reclaimed land in the likes of Dubai’s Palm Jumeirah.
The land for the two phases of Seri Tanjung Pinang (STP) has to be reclaimed from the sea off the north-east coast of Tanjung Tokong in Penang. The reclamation for the 240-acre phase one incurred some RM500mil and a development cost of a further RM1bil, for an after tax margin of around 15%.
Construction of the bigger scale phase two comprising two islands of 760 acres and a further 131 acres that will be surrendered to the state government for development of a new expressway, a new Gurney Drive promenade and a parallel linear park for the public, will take place after a decade from the start of STP phase one.
Given its more massive scale in deeper waters and against a creeping inflation backdrop, the total reclamation and development cost for STP phase two will undoubtedly be much higher.
In a recent interview with StarBiz in Penang, E&O managing director Datuk Terry Tham stresses E&O’s commitment to the project and that the company is expending substantial resources, time and effort to ensure the project sets a new benchmark in seafront development and waterfront living that will make Penang and the country proud.
From the proposed masterplan of STP phase two, the project will further etch the E&O brand name as one of the leading names in property development and hospitality locally and internationally.
“Through STP phase one, we have demonstrated that we are not afraid to take on challenges such as the revival of a project that was abandoned for many years. Even during testing economic conditions, E&O has proven that its team is innovative and creative in how we designed and developed the project into a unique masterplanned seafront development that is now a thriving community,” Tham says with pride.
He stresses that E&O is ready to comply by all conditions set by the authorities, which include a detailed environmental impact assessment (DEIA) study that has received approval with conditions.
“As a responsible developer, E&O has appointed Malaysian consultants familiar with local conditions as well as reputable international consultants with the experience and expertise of reclamation projects worldwide, to verify and help monitor that each stage of reclamation work is consistent with international standards, irrespective of whether it is imposed on us. In short, if the authorities state a requirement, E&O will readily comply. Other reasonable and justifiable concerns would also be addressed seriously and responsibly.”
Tham says as phase one kicked off in 1995 at a difficult economic time and with a high initial acquisition and investment outlay, the company had adopted a more prudent and proven development model that delivered practical and liveable homes.
“For STP phase two, we have engaged leading and renowned international and local architects and planners to create a development concept that will raise the current benchmark even further,” he says.
Reclamation technologies
Tham says reclamation work for the STP phase one and Dubai’s Palm Jumeirah both employed one of the most extensively used reclamation technologies in the world, the Sand Replacement Method, which was also used for Singapore’s Tuas Biomedical Park 2, the Disney Theme Park in Hong Kong and the Betuweroute Railway in the Netherlands.
E&O is in the final stages of getting the necessary approvals for the STP phase two project after receiving the Federal Department of Environment’s (DOE) approval with conditions for the DEIA study on April 10 this year.
The company had submitted the necessary applications to the Penang state government for its endorsement of the phase two masterplan and hopes to obtain the state’s approval by the fourth quarter of this year. Reclamation work is to take three to five years and the development of STP phase two will take up to 15 years.
If all goes well, the materialisation of the STP project is expected to provide many years of good earnings streams to E&O and its shareholders, notably the major shareholder Sime Darby Bhd which acquired a block of 30% in E&O in 2011.
Sime Darby bought up to 273 million E&O shares and 60 million irredeemable convertible secure loan stocks for a total of RM766mil from Tham, Tan Sri Wan Azmi Wan Hamzah, GK Goh Holdings Ltd and some connected parties. After selling their shares to Sime Darby, Tham, G.K. Goh and Wan Azmi still remain as E&O’s shareholders with a 5.1%, 3.5% and 2.9% stake respectively.
The price paid at RM2.30 a share was at a 60% premium over its last closing price of RM1.45 when the deal was announced on Sept 9, 2011.
Sime Darby’s purchase of the E&O shares stirred up some controversy as minority shareholders claimed they were sidelined and sought for Sime Darby to be compelled to undertake a mandatory general offer for the remaining shares in E&O.
In December 2011, a minority shareholder Michael Chow sought a court order to compel the Securities Commission (SC) to force Sime Darby to make a general offer for shares in E&O but Chow had since dropped his appeal to challenge the High Court judgment on Dec 9, 2013 that struck out his application for a judicial review against the SC’s decision not to compel Sime Darby to make a general offer for the remaining shares in E&O.
Sime Darby had said that it acquired the non-controlling 30% stake as a logical step in strengthening its market position and that it was not acting in concert with any of the vendors of the E&O shares.
The plantations-based conglomerate had based the purchase price of the E&O shares at RM2.30 a share largely on the realisable net asset value (RNAV) of E&O going forward.
The RNAV of E&O came to an average of RM2.91 a share based on available information on E&O’s landbank of around RM3.2bil then.
Sime Darby’s ability to leverage on E&O’s technical skills and strong brandname in the upscale luxury residential segment will open up wider opportunities for the group to further build up its capability as a developer.
The value of E&O is also invariably underpinned by the company’s management led by Tham and his deputy managing director, Eric Chan.
Tham, who founded the E&O group, has agreed to be around for at least three years to helm E&O as its managing director. Meanwhile he is grooming a number of key personnels in E&O, including his deputy Chan, to ensure a smooth succession in the company should he decide to call it day at the company.
With the three year period coming up this August, Tham and his team’s commitment to ensure the materialisation of the STP phase two project will undoubtedly be closely monitored by the shareholders and the public alike.
Asked on his vision, Tham says:
“Our vision is to see STP2 being developed into a new thriving township filled with modern amenities and facilities, yet embraces the history and heritage, culture and romance, that is the essence and soul of Penang. Created in sympathy with the environment, it will be a development we would be proud to showcase to the rest of the world.”
On whether he will see through the project to full completion, the 61-year-old Tham reflects realistically: “I’m not young anymore, and I pray that I can stay healthy and wise. On another note, the right to reclaim and develop STP2 is owned by Tanjung Pinang Development, a subsidiary of E&O. Hence, whether I am continuing will depend on the company, namely its board members, shareholders and stakeholders.”
Social needs
To meet the needs for affordable housing, Tham says the company has build 1,336 low medium cost housing units in Seri Tanjung Pinang phase one, which made up 67% of the total 1,989 houses built there. This is 7% more than the stated requirement in the concession agreement, he adds.
Responding to concerns raised by some non governmental organisations about the environmental impact of the STP project on sedimentation and erosion at Gurney Drive, Tham explains that the concession given by the state government in 1990 provides for reclamation and development in phases of approximately 980 acres.
“The previous owners of the concession company did commence reclamation works but the project was twice abandoned and the partially reclaimed land then left idle. In 2004, E&O assumed the rights, obligations as well as liabilities of the concessionaire and proceeded to complete the reclamation of STP phase one in 2005.
“Therefore, it should be acknowledged that sedimentation and siltation causing mudflats along Gurney Drive were already in existence, well before E&O came on board. Upon completion of STP phase one reclamation, E&O’s project became viewed as the contributing factor towards the mudflats, however, with no reference point and earlier study, a scientific conclusion cannot be drawn on the extent of its contribution. But what is important is the lesson learned, for both regulatory authorities as well as developers, and that mistakes should not be repeated at STP phase two,” he says.
The project director/team leader for STP phase two’s DEIA Report, Prof Datuk Sharifah Mastura Syed Abdullah, explains that the environmental impacts of STP phase two covering the 5km impact zone have been addressed in the DEIA study, which comprises three comprehensive volumes of nearly 1300 pages and includes technical graphs and data.
“The pertinent issues of focus covered in the DEIA have also been raised by the DEIA Review Panel, NGOs and public individuals and include the environmental impacts of reclamation works, trade-offs particularly with regard to mangroves and fishing grounds; concerns for the fisher communities who are directly impacted by the project; and traffic issues arising from the new development. Each of these issues has been addressed in the DEIA with corresponding mitigating measures,” she points out.
Sharifah says the width of the land reclamation along Gurney Drive that varies between 100m and 600m will extend over the existing mudflats whilst creating a new coastline with land that has been proposed as a linear public park for the people of Penang.
“The hydraulic modelling carried out has shown that the proposed project will not be causing any sedimentation along the shoreline. Notwithstanding this, as a precaution against sedimentation, it has been proposed that silt curtains be used during the construction stage. Furthermore, the effectiveness of the silt curtains will be monitored as part of the environmental monitoring programme during the construction phase.”
The configuration and shape of the proposed STP phase two project and extension of Gurney Drive were guided by the hydraulic modelling studies that aimed to optimise the hydraulic regime of the area and prevent the reoccurrence of mudflats.
In addition, she says the project proponent is mandated by the authorities to carry out bathymetry surveys along Gurney Drive pre- and post-reclamation to verify the predictions of the hydraulic modelling exercise with respect to erosion and sedimentation issues.
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