LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Business and propertiesLMIR Trust has, via its wholly-owned Retail Mall Singapore SPCs, entered into share purchaseagreements to acquire the entire share capital of the relevant Retail Mall Indonesian SPC. LMIR Trustwill, through the Retail Mall Singapore SPCs, indirectly own the Retail Mall for the period stipulated in therespective BOT Agreement. The term of BOT Agreements ranges from 20 years to 30 years and may beextended upon agreement of both parties. During the term of the BOT Agreement, the respective BOTGrantor is not allowed to sell or transfer the land on which the relevant Retail Mall is situated. Upon theexpiry of the term of the BOT Agreement, the BOT Grantee must return the land, together with anybuildings and fixtures on top of the land, without either party providing any form of compensation to theother.The BOT Grantee may assign its rights under the BOT Agreement with prior consent of the BOT Grantor.The BOT Agreements are silent on the circumstances under which the respective BOT Grantor maywithhold its consent to such an assignment. Under Indonesian law, a transfer of rights under an agreementmust be approved or acknowledged by the opposite party. Therefore, if a BOT Grantee assigns its rightsunder the BOTAgreement without the consent of the BOT Grantor, the assignment will not be effective andthe BOT Grantee shall be deemed to have caused a breach of contract. Instead of a transfer of a BOTGrantee’s right through an assignment of the BOT Agreement, which requires consent from the BOTGrantor, the transfer of the BOT interest may also be made through a transfer of shares in the BOT Granteeby the shareholders of the BOT Grantee. Except for the BOT Agreement relating to Cibubur Junction, thetransfer of shares in the BOT Grantee does not require consent from the BOT Grantor. In respect ofCibubur Junction, the BOT Grantor has approved the transfer of shares in Cibubur Junction to its relevantRetail Mall Singapore SPCs, as evidenced by Letter No. 306/076.11, dated 4 April 2007, issued by therespective BOT Grantor.(See “Overview of Relevant Laws and Regulations in Indonesia—Rights to Own and/or Use—Build,Operate and Transfer or BOT”).LMIR Trust owns the Retail Malls, via its 100% ownership interests of shares in the Retail Mall SingaporeSPCs, under BOT Schemes because:• Freehold land in Indonesia may not be owned by companies (whether Indonesian or foreign-owned) orby foreign individuals. Under Indonesian land law, the closest form of land title to an internationallyrecognised concept of “freehold” title is Hak Milik (“HM”) or “Right of Ownership”. A Hak Milik title isavailable only to Indonesian individuals and certain Indonesian religious and social organisations andgovernment bodies. In the Indonesian property market, it is common for properties to be held underagreements or schemes without the legal title being transferred. (See “Overview of Relevant Laws andRegulations in Indonesia—Rights to Own and/or to Use—Hak Milik (HM/Right to Own)”);• Instead of transferring the ownership of the land, the land owner may prefer to use the BOT Scheme forcommercial reasons. The land owner may not intend to transfer the ownership of the land because theland is located at commercially strategic locations or has historical value. Alternatively, the land ownermay have limited financial capability to develop the land. Under such circumstances, the land ownermay prefer to enter into a BOT Agreement with a BOT Grantee who are property developers with strongfinancial support and proven track records; or• A BOT Grantee may prefer to use the BOT Scheme because the compensation for obtaining the BOTrights could be considered as more price feasible and cash flow effective as compared to an outrightpurchase of the land.Strata titlesOne of the seven Retail Malls, namely, Gajah Mada Plaza, is held via strata titles. Under Indonesian landlaw, a building developer must divide a multi-storey building into (i) rights of ownership (strata title) for eachunit, (ii) rights on common properties and (iii) rights to the common land in the form of a sketch plan, whichmust be approved by the relevant authority. Such sketch plan must also provide an explanation on (i) unitseparation that can be used by individuals, (ii) the limitation and separation of the strata title right overcommon properties, and (iii) the strata title right over the common land.In general, if a party holds a property via strata titles, the party that owns the strata title unit, will also ownthe common areas, common property and common land (i.e. the underlying land) proportionately with the128