Calvary Enters JV with Property Developer

Calvary enters JV with property developer
After banks reject loans to CCC

At the recent EGM of Calvary Church held on 23 September 2011, the Board of Deacons announced that all their recent loan applications to various Banks to finance the construction of the Calvary Convention Centre (CCC) have been rejected.

Previously, the Church had only managed to secure a RM35 million loan from Alliance Bank and a RM8 million loan from Public Bank. However, the Church is still short of at least RM75 million to complete the project.


The wasteful RM300 million project (Phase 1 and 2) has been plagued with problems after problems since commencement of works. Despite the recent fanfare of the cornerstone-laying ceremony at the site, the ability of the Church to complete the CCC remains in doubt.

Having failed to secure additional Bank borrowings, the Church is now embarking into a Joint Venture with a small Property Developer to develop the 1.75 acre commercial land adjoining the CCC site to build Serviced Apartments. The Developer, Exsim Development is a relatively new industrial park Developer with 2 on-going industrial developments in Bukit Rimau and Kota Damansara. Recently, they ventured into their first condo development at Bukit Jalil called the Treez.


The Joint Venture between the Church and Exsim has been disguised as a sale of land at a highly inflated price of RM55 million with payments staggered until 2015. Deacon Zoo Gin admitted during the presentation that the market value of the land is only about RM17 million. From this, it can be inferred that the difference of RM38 million represents the profit share from the proposed apartment development.

The obvious reason to camouflage the Joint Venture as a sale is for tax planning purposes (defined as the legal form of tax evasion). The other reason is aptly said by Senior Pastor Prince Guneratnam (PG) at the EGM that “we do not want to be seen as going into business”.


Zoo Gin claimed that the Board had consulted a Tax Agent on the tax implications of the sale and the Tax Agent has opined that the sale transaction, although at inflated price, falls under the Real Property Gains Tax and therefore, the gain is not taxable as the Church has held the land for more than 5 years. (If the sale proceeds is recorded as profit share from property development, the entire RM55 million less the original cost of land will be taxable.)


Zoo Gin clarified that the land title will be transferred to Exsim only upon full payment of the RM55 million. Should this be the case, then when the Apartments are sold, the individual Sale and Purchase Agreements will surely state Calvary Church as the Landowner and Exsim as the Developer.


In such a scenario, how then, is the Church going to convince the Tax Department that this arrangement is not a Partnership or Joint Venture and should not be taxable? PG and his Deacons may fool the members but can they fool the Tax Department?


This commonly used strategy of hiding profits from property development in marked-up Sale and Purchase Agreements can easily be challenged by the Tax Department. The Church will run the risk of public exposure and a fine but the worst consequence is the embarrassment it will bring to the Christian community.


The Calvary-Exsim Deal

Exsim will buy the land for RM55 million on a staggered payment basis as follows:-



Upon signing the Sale and Purchase agreement, Exsim pays the church 2% of Purchase Price equal to RM1.1 million. This earnest money is refundable should the Development Order (DO) for Apartment Development not be approved by DBKL. In such an event, Zoo Gin said that with the refund to Exsim, the status would be back to square one.

Exsim will pay the church RM13.0 million in February 2012 from a Bank loan which Exsim will obtain by charging the commercial land to the Bank. Exsim will bear the interest cost on this RM13.0 million loan. This will be a Third Party Charge as the land title would still be in the Church’s name. By this time, the Church would have received RM14.1 million but the land would have been charged to a Bank. Deacon Zoo Gin told the members that this is OK because the land was bought for RM7.0 million and the present value is RM17.0 million.

Exsim will pay the Church RM2.0 million a month from July to December 2012 totalling RM12.0 million and the balance of RM28.9 in quarterly instalments from March 2013 to December 2015.

In addition to the RM55.0 million, Exsim will make a donation of RM1.5 million to the CCC building fund. This donation will be paid in 2013.


The reason why Exsim was chosen

Zoo Gin informed the members that they had 3 proposals from 3 parties namely Seal Group Bhd, E & J (the contractor doing the reinforced concrete work for CCC) and Exsim. Seal Group Berhad did not turn up for the interview because they could not meet the Church’s requirements while E & J is merely a Contractor and not a Developer. Zoo Gin claimed that no other Developer was interested although invited. Therefore, Exsim was the only option.

Zoo Jin said that they have checked Exsim’s financials and found their financial strength to be “sufficient and acceptable”. A member asked him to elaborate with figures. He declined saying that it is not appropriate to disclose at the public meeting. Either he had something to hide or he was simply ignorant of the fact that private limited companies’ financials, shareholders and directors’ details are in the public domain and can be easily obtained from the Companies Commission.

Who is going to bear the risk should this JV deal not work?

Exsim has a very good deal. They only pay a refundable deposit of RM1.1 million for the option to develop the land with absolutely no risk. Even if they take up a loan in their own name to pay the Church the second payment of RM13 million, they are not at risk as the collateral is the Church land. The risk is on the Church. In the event of a default in loan repayment by Exsim, the Church will have to come out with the money to repay the bank or stand to lose the land.


Even if the DO is obtained, there is no certainty that the Apartment Development will sell. In order for Exsim to pay the Church RM55 million and still make a development profit, Exsim will have to build about 400 apartments and sell them for at least RM750,000 each to generate a gross development value of RM300 million, based on an average development profit of 30%. That is certainly a tall order for that locality and during a time of anticipated severe economic downturn by the time the apartment project is launched. If Exsim does not make profit, then the Church may not receive the full sum of RM55 million.

With such risks and the uncertainty of getting the full payment of RM55 million, why then is PG and his Deacons pushing for this transaction?

Rumours of a side deal are aplenty especially since it is an open secret that all, if not most, of the final negotiations with contractors and suppliers and probably in this case, Exsim as well, are done by PG and his son alone. That aside, without doubt, it is definitely a case of pure desperation that PG and his Deacons are willing to take this risk. The clock is ticking fast and money is just not coming in as PG had hoped.

On the EGM, it was good to note that there are new faces who are beginning to ask questions but unfortunately these voices are still few in numbers. Without saying, of course, the supporters of PG at the EGM, shouted praises to God and voted yes to the sale.



Clip #1 : Listen to the 3 Options presented by Zoo Gin.




Clip 2 : Listen to the terms of the JV