Rich Capital partner demands issuance of performance bond by June 1 for Batam project

RICH Capital has received a second letter from a joint-venture partner of Oxley Batam, its 80 per cent-owned indirect subsidiary, requesting the Batam development project's main contractor to confirm that it will provide a performance bond by June 1.

This is contrary to the previous understanding reached, and which was announced by Rich Capital on May 17, the Catalist-listed property developer said in a bourse filing on Thursday morning.

PT Karya Indo Batam (KIB) sent Rich Capital the first letter on May 13 expressing concerns regarding the development project in Batam, Indonesia, which is being developed by PT Oxley Krya Indo Batam (OKIB) - KIB and Oxley Batam's equally owned joint venture.

KIB was concerned about a potential conflict of interest in appointing Rich-Link Construction (RLC) as the main contractor for the project. RLC is an associate of Rich Capital's non-independent non-executive chairman, Wang Zhen Wen.

In the first letter, KIB also alleged delays to the project due to RLC's lack of resources, and that RLC had yet to submit to OKIB a performance bond due under RLC's S$125 million construction contract for a sum equivalent to 10 per cent of the contract value.

All parties had agreed then that OKIB will accept a performance bond issued based on Indonesian standard terms, subject to Indonesian law and the approval of OKIB's independent project team.

It was also agreed that OKIB will release, in goodwill, part of the first progress claim under the project of 8.38 billion rupiah (S$796,000) to RLC. After that, RLC was to have up to two weeks to issue the performance bond to OKIB.

But KIB sent a second letter on May 22 which was contrary to that previous understanding, Rich Capital said.

KIB is now requesting, among other things, that OKIB immediately demand that RLC give written confirmation that it is able to provide the performance bond, and that the performance bond will be issued to OKIB promptly and no later than the close of business on June 1, 2019.

Rich Capital said it is assessing the basis, merits and implications of the matters raised in the second letter, and is seeking professional legal advice on it.

Shares of Rich Capital were trading at 0.2 Singapore cent as at 9.13am on Thursday, down 0.2 cent from Wednesday's close.