Not all our fault, says Talam

29/04/2006 NST-PROP By P. Rajan

Changing Government policies; bureaucratic delays regarding the hiring of foreign workers; “sudden” changes in policy governing hillside development. All these factors “triggered a chain reaction” that brought about the dire predicament Talam Corp Bhd is now in. So said its executive chairman Tan Sri Chan Ah Chye at a recent media briefing on its debt restructuring plans.

“They contributed to project delays and led to the severe cash crunch we’re facing,” he said, adding that as a consequence, untold damages have been caused. Among them, debt in the region of RM1.2 billion; stalled housing projects littered throughout the Klang Valley; and a reputation now tainted with shoddiness and contempt.

Once one of the most aggressive builders of affordable houses in the country, responsible for producing over 100,000 units since its inception in 1986 – an average of 10,000 a year – the only distinctions of the developer today are its 16 problematic projects accommodating 11,853 housing units. Of these, 5,718 units or 48.2 per cent have been labelled “delayed” while the remaining 6,135 units or 51.8 per cent are “sick”, requiring considerable effort to rehabilitate.

Many disgruntled buyers do not accept Chan’s reasons.

“Labour shortage has been the usual excuse,” said a purchaser of a unit in Talam’s Saujana Putra development. “And how is it that work in a neighbouring project, undertaken by another developer, is progressing so fast?”

“Let’s not talk about the past … there have been many mishaps,” said Chan. “Right now, we have in place a corporate restructuring exercise to sort out the problems.”

He was referring to a reprieve Talam has received from its major lender which holds about RM800 million, or some 70 per cent, of its debt.

Under the recently inked agreement with the lender, Talam will defer payments on the outstanding amount until the completion of its stalled projects. A key feature of the agreement is that a reputable principal contractor – IJM Construction Sdn Bhd (IJM) – will be appointed to guarantee the completion, with some 6,000 slated to be ready this year.

In return, IJM will receive the full cost of the construction from progress billings.

“Main thing is to clean up our act and do some house cleaning to regain buyers’ confidence,” said Chan.

“The corporate exercise should take about 12 months, after which the Group’s gearing will go back to a more comfortable level.”

But not everybody is as sanguine about the future as many issues have still to be ironed out. One bone of contention involves the payment of Liquidated Ascertained Damages (LAD) for units delivered late.

In one case, Honest Prestige (HP) Sdn Bhd, which is now managing the development of Lagoon Perdana, is believed to have requested buyers to waive the LAD that has been due since 2003.

HP was appointed in a multi-layered deal that originated with the sale of Lagoon Perdana developer, Tenaga Gagah Sdn Bhd (a Talam subsidiary) to two individuals, Asli @ Martinus Musa and Ombokou @ Francis Sauyang in November last year for RM55,000.

“We’re pushed into a corner,’ said a buyer. “If we do not (agree to a waiver of the LAD), the project will be abandoned and we stand to lose everything.

“But if we sign, we’ll lose the LAD, which would help us mitigate our loss (that arose from servicing bank loans for houses that have yet to be delivered).

“Also, what guarantee is there that the new owner will complete the project?”

Given the Catch-22 situation facing buyers, their woes – as well as Talam’s, which registered a nett loss of RM513 million for the year ended Jan 31 2006 – may continue at least for a while.