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KSK Land terminates RM1.25bil contract with GDB for 8 Conlay

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Split comes after nine months of unresolved issues, disputes on scope of work and financial payments.

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8 Conlay is a luxury mixed-use development comprising a four-storey retail block, the Kempinski Hotel in Malaysia, and two residential towers.

PETALING JAYA:
KSK Land Sdn Bhd (KSK), the developer of the luxury 8 Conlay project in Kuala Lumpur, has decided to terminate its contract with Grand Dynamic Builders Sdn Bhd (GDBSB), a subsidiary of GDB Holdings Bhd.

In a statement today, KSK said the difficult decision to terminate the contract between Damai City Sdn Bhd (DCSB), a wholly-owned subsidiary of KSK Land Sdn Bhd, and GDBSB, follows a failure to achieve “agreeable solutions to various disputes”.

“(These issues were in relation to) construction site matters over a period of the last nine months, including scope of work, construction programme, and financial instalment payments following the Covid-19 pandemic,” it said.

Throughout the process of discussions, KSK said there has also been an increasing number of conditions imposed by GDBSB, culminating in a series of demands communicated on April 4.

“In the communication, GDBSB requested for DCSB to novate all existing nominated subcontractors (NSCs) within a two-week period, and to take on all liabilities and responsibilities thereafter as well as for any matters arising prior to the determination of the NSCs,” it said.

GDBSB had also asked to be removed from the main builder works, and for DCSB to pay for the loss of profits arising from that.

“These stipulations are extremely one-sided and unreasonable on the part of GDBSB as 8 Conlay’s main contractor, and despite best efforts to find a viable solution for each matter, it has become impossible for KSK and DCSB to accommodate or fulfil them,” it added.

Since then, KSK has been in discussion with new potential contractors, including Conlay Construction Sdn Bhd.

8 Conlay is a luxury mixed-use development comprising a four-storey retail block, the Kempinski Hotel in Malaysia, and two residential towers.

In a Bursa filing today, GDB Holdings announced they received a copy of the notice of determination (termination) from DCSB for the 8 Conlay project. It added DCSB’s notice of determination is considered by the GDB directors to be wrongful.

In response, GDBSB exercised its right to immediately determine the contract and has served a notice of determination dated April 19 to DCSB.

GDB said the execution of the determination is expected to have a material impact on the group’s earnings, net assets and net asset per share for the current financial year ending Dec 31, 2023.

Splitting after a tumultuous relationship

KSK and GDBSB had faced difficulties in their partnership early on. On Oct 6 last year, GDBSB filed a writ of summons and letter of claim against KSK at the Kuala Lumpur High Court.

GDBSB had claimed a total outstanding sum of RM120.69 million due in connection with the corporate guarantee made by KSK in favour of GDBSB.

It contended that KSK was in breach of its obligations under the corporate guarantee when it failed, refused and/or neglected to honour the corporate guarantee and effect payment for RM120.69 million.

Prior to this, GDBSB had served DCSB a suspension notice for works on the 8 Conlay project on Aug 16, 2022.

The suspension was lifted this year on Jan 9, with GDBSB set to recommence facade work for Tower A following the receipt of the partial payment of the outstanding sum from DCSB.

In a Bursa filing on Jan 9, the group said the full resumption of construction under the project was scheduled for early April, subject to the full settlement of the outstanding sums payable to GDBSB by DCSB.

The writ of summons and letter of claim was later withdrawn on March 21, according to a Bursa filing by GDB.

The contract for 8 Conlay

To recap, GDBSB accepted the letter of award (LoA) for the 8 Conlay project on Nov 9, 2020 to be the main contractor.

The contract sum in the LoA was RM1.25 billion with a commencement date of Nov 23, 2020.

With an original overall construction duration of 34 months, the project was scheduled for completion by September.

The project involved the construction of three tower blocks, which were the remainder of the building works for 8 Conlay, which is situated along Jalan Conlay in the heart of KL.

For the financial year ended Dec 31, 2022, GDB posted a net profit of RM17.2 million, down 39% from the previous year.

The lower profit is attributed to an increase in construction material prices and labour costs and higher project preliminaries and staff costs due to prolonged contract durations as a result of the pandemic.

“The group’s outstanding order book stood at RM1.28 billion as at Dec 31, 2022, which provides earnings visibility until the financial year ending Dec 31, 2024,” said GDB.

This outstanding order book consists of construction works for the newly-secured contract to build a logistic hub in Persiaran Bukit Raja, Klang.

The order book also includes Park Regent in Desa ParkCity and 8 Conlay as well as the sub-contract for bored piling works at Bandar Kuala Lumpur.

GDB’s share price fell 3 sen or 15% to 16 sen today, giving it a market capitalisation of RM154.7 million.

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