KUALA LUMPUR (Feb 22): The proposed sale of an eight-storey building or 'Building 2' to Ibraco Bhd's major shareholder Hiap Ghee Seng Sdn Bhd (HGS) for RM25.5 million is considered fair and reasonable and not detrimental to its non-interested shareholders.

Independent adviser to non-interested shareholders Kenanga Investment Bank Bhd also recommended that Ibraco shareholders vote in favour of the resolution on the proposed sale that would be tabled in an extraordinary general meeting on March 9.

In a letter filed with Bursa Malaysia today, Kenanga said the sale consideration of RM25.5 million, which took into consideration the market value of the building, its RM22 million gross development cost (GDC) and rationale for the purchase, is reasonable.

The gain on sale realised from the proposed sale minus the estimated expenses is expected to increase the retained earnings of Ibraco, Kenanga said, adding that the sale would also reduce Ibraco's gearing slightly to 0.43 times from 0.44 times.

"In view of the softening market outlook, negative growth in market activities and the cumulative supply of purpose built office space in Kuching, the proposed sale would be beneficial for Ibraco to undertake to secure the sale of Building 2," Kenanga advised.

On Nov 23, 2017, property developer Ibraco said HGS, which owns 26.32% of Ibraco, proposed to buy Building 2 — part of the group's NorthBank Office Building development, which also features a six-storey corporate office block (Building 1), in Kuching, Sarawak.

The NorthBank Office Building project is part of a 49.5ha mixed development plan that includes 230 units of three-storey shophouses, a 13-storey block of serviced apartments with a podium, and an 8-storey block of 168 units of small office-home offices with strata titles.

Both Ibraco and HGS have entered into a sale and purchase agreement and deed of mutual covenants for the proposed sale of Building 2.

HGS is 99%-owned by Ibraco managing director Datuk Chew Chiaw Han and 1%-owned by his father Chew Chee Heng. The younger Chew also possesses 3.2% direct stake in Ibraco.

Ibraco said the proposed sale is in the ordinary course of business of the group and represents an en-bloc sale of Building 2 to a ready buyer for profit.

"The progressive payments from the sale consideration will help to part finance the development costs of the NorthBank Office Building. The proposed sale would contribute positively to the group's earnings," it added.

Ibraco intends to use Building 1 for its new corporate office whereas HGS plans to turn Building 2 into its new corporate office.

NorthBank Office Building has a GDC of RM53.2 million while Building 2's estimated GDC is RM22.2 million, and a gross development value of RM25.5 million with expected profits to be derived of RM3.3 million.

The funding for NorthBank Office Building would be through progressive claims from the proposed sale, and a combination of internally generated funds and bank borrowings.

Ibraco shares were not traded in the morning. It closed down at seven sen yesterday for a market capitalisation of RM347.48 million. — theedgemarkets.com

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