BRDB asset sale in hands of foreign investors

KUALA LUMPUR: The fate of Bandar Raya Development Bhd's (BRDB) proposed asset divestment plan is largely in the hands of offshore investors, including the company's single largest shareholder that owns a 23.57% equity stake held by Credit Suisse.

Among shareholders with over 3% equity stakes, foreign offshore nominee accounts collectively held about 60.9% shareholding in BDRB, according to the company's latest annual report. The ultimate owners of these shares were not disclosed in the annual report.

It is not known who ultimately owns the big block of 114.6 million shares that are parked under HSBC Nominee (Asing) Sdn Bhd for Credit Suisse. Even BRDB CEO Datuk Jaganath Sabapathy said he does not know who the company's largest shareholder is when asked at Monday's, Sept 19 media briefing.

Ambang Sehati Sdn Bhd, which has an 18.9% stake, will abstain from the voting on the proposed asset sale. BRDB chairman Datuk Mohamed Moiz controls Ambang Sehati. Logically, this means BRDB shareholders who hold the remaining 81.1% shareholding would cast their votes at an EGM to be convened later.

And among them, foreign shareholders would be the largest group to decide on whether to permit the BRDB board to part with the company's four investment properties, including its crown jewel Bangsar Shopping Complex (BSC) for a total consideration of RM914 million, comprising RM430 million cash and net liabilities totalling RM484 million to be assumed by Ambang Sehati.

BRDB has also proposed to utilise part of the sale proceeds for a cash dividend payment of 80 sen per share to reward shareholders.

Ambang Sehati is expected to receive about RM73.6 million cash from the proposed special dividend. Meanwhile, Credit Suisse's client, who holds 114.6 million shares, will pocket about RM91.6 million. The special dividend will cost the company about RM390 million.

As for the balance cash proceeds, some RM302 million will be used to pare down borrowings and RM168 million for working capital.

The proposed divestment has drawn considerable public attention since BRDB announced it on Sept 5. Among the criticisms are that BRDB should have an open tender for the asset sale and the rationale of selling its cash generating prime properties.

OSK Research commented that the price tag is not below its expectation.

"We do not rule out the possibility of the deal being shot down by minority shareholders as some of them may deem the consideration price of the assets as undervalued or unattractive," it wrote in a research note on Tuesday.

According to OSK Research, the purchase consideration of RM430 million and net liabilities of RM484 million to be assumed by Ambang Sehati represents a 3% discount to the assets' total net book value of RM942.4 million as at end-FY10.

"Our initial expectation was for the assets to be disposed of for at least at 1x P/NBV compared with the 0.97x P/NBV offered by Ambang Sehati. We were slightly disappointed as we expected the assets, especially BSC and Menara BRDB, to be able to command a sizeable premium due to their prime location and future prospects," OSK Research said.

Based on AmResearch's calculation, the consideration value that includes RM484 million net liabilities related to BSC and Menara BRDB works out to be RM1,000 per sq ft for the four assets.

"While the proposed dividends are attractive for minority shareholders, we believe the cash proceeds are better off deployed for landbanking purposes or to fund its future developments, especially when [the performance of] its property development unit has been lacklustre due to a delay in launches. This is also true especially so in the current global economic climate," said AmResearch.

Some analysts commented that it is a good deal for Ambang Sehati, which would be able to benefit from higher potential rental earnings from Menara BRDB, an office block beside BSC, should the occupancy rate increase further.

However, according to an official from BRDB, the valuation of Menara BRDB is based on an occupancy rate of 95%.

At the media briefing on Monday, Jaganath explained that the deal was based on a 6% valuation yield for retail assets and 6.5% for the office asset that was "extremely attractive" compared with similar transaction.

He pointed out that while holding investment properties does provide a "big comfort zone", such strategy is better suited for investors with a long term horizon. "Our job is to work out capital," he said.

The proposed divestment plan will be tabled to shareholders at an EGM by year-end.

The assets sale is expected to be completed by the first quarter of next year should the shareholders approve the deal.