KUALA LUMPUR: Bandar Raya Development Bhd (BRDB) has decided to part with four investment properties, including its crown jewel Bangsar Shopping Centre (BSC), for a preliminary cash consideration of RM430 million with net liabilities of RM484 million to be assumed by the buyer, valuing the entire transaction at RM914 million.
BRDB CEO Datuk Jaganath Sabapathy on Monday, Sept 19 said the board, excluding its interested directors, has decided to accept the recent offer from its major shareholder Ambang Sehati Sdn Bhd to acquire four properties.
They are BSC and Menara BRDB in Bangsar, CapSquare Retail Centre in Kuala Lumpur and Permas Jusco Mall in Johor Bahru.
Following the proposed disposal, BRDB will distribute part of the proceeds to its shareholders via a net cash dividend of 80 sen per share.
Ambang Sehati's portion of that special dividend is estimated at RM73.65 million given its 18.88% equity interest in BRDB, which is equivalent to 92.07 million shares.
Speaking at a press conference, Jaganath said BRDB expects to finalise the sale and purchase agreement (SPA) within three weeks and to table the proposed divestment to shareholders by year-end.
If shareholders give the green light for the proposed asset sale, the deal is expected to be completed by the first quarter of next year, he said.
The structure of the deal will see Ambang Sehati acquiring the CapSquare Retail Centre and Permas Jusco Mall assets directly from BRDB's subsidiaries.
Two independent valuers had last week placed an indicative valuation on the two properties at RM68 million for Permas Jusco Mall and RM146 million for CapSquare Retail Centre.
However, Ambang Sehati will purchase the two Bangsar assets by acquiring the assets and liabilities of their holding company, BR Property Holdings Sdn Bhd, which in turn is a wholly-owned subsidiary of BRDB.
An independent valuer had valued BSC and Menara BRDB at an indicative value of RM700 million.
However, the preliminary disposal consideration for BR Property comes up to about RM216 million after adjusting for the company's liabilities of RM484 million, which comprise a RM450 million loan and RM34 million in other liabilities.
Under the deal, the final purchase price for the assets shall be the higher of the indicative value and final valuation of these assets, which is currently in progress, BRDB said.
Ambang Sehati's offer had sparked some criticism that BRDB was selling off its assets which have generated stable recurring incomes and that the potential buyer is a related party.
Ambang Sehati's shareholders include BRDB chairman Datuk Mohamed Moiz JM Ali Moiz, Datuk Seri Akbar Khan Mohamed Khan and Abdul Sathar MSM Abdul Kadir.
Jaganath conceded that holding investment properties does provide a "big comfort zone" but such strategy was better suited for investors with a long term horizon.
"Our job is to work our capital," he said.
According to its announcement to Bursa Malaysia, there will be minimal impact on the company's earnings as rental income foregone from the sale would be compensated by lower interest expenses.
BRDB said the assets contributed about RM10 million in earnings for the financial year ended Dec 31, excluding a one-off fair value gain of RM78.5 million. On the other hand, based on an estimated effective interest rate of the company of 4.61%, the repayment of borrowings from the sale proceeds will result in interest savings after taxation of about RM10.4 million per annum, it added.
Jaganath stressed that Ambang Sehati's bid was an unsolicited offer for the package of four properties and that it was incumbent on the board to evaluate the offer.
"We are not in the business of [offering assets] for cherry picking... If we are going to move the investment assets out, it makes more sense to look at it lock, stock and barrel," he said.
Why then did BRDB's board not call for an open tender to obtain competitive proposals for its assets?
Addressing those concerns, BRDB independent director T Vijeyaratnam noted that an open tender could impact the ongoing operations of the four properties, which comprise three retail malls and one office block.
"Once the board decides to sell it by tender, the whole world knows these assets are for sale... Do we compromise the interests of all those stakeholders involved with the operations of those assets?
"What happens if at the end of the day you don't get a competitive bid and Ambang Sehati withdraws? Is it fair to the shareholders?" Vijeyaratnam said.
BRDB had not received any other offer for any or all of the four assets since Ambang Sehati's offer was made public, Jaganath said.
Jaganath said the deal was based on a 6% valuation yield for retail assets and 6.5% for the office asset which was "extremely attractive" compared with similar transactions.
BRDB stands to gain total cash proceeds of about RM860 million at the group level, comprising RM430 million in divestment proceeds and RM430 million inter-company repayment from BR Property when Ambang Sehati assumes its loans.
The net gain from the sale to BRDB is estimated at RM30.4 million, as Permas Jusco Mall will be sold at book value, CapSquare Retail Centre will be sold some RM15.25 million below its book value while BR Property will be sold at a premium of RM45.65 million to its book value.
Jaganath said BRDB proposes to utilise the proceeds from the divestment to pare down the group's borrowings (RM302 million), pay a special dividend to shareholders (RM390 million) and for working capital (RM168 million).
He said the asset disposal will enable BRDB to unlock value from its assets and focus on property development, which has the potential to generate higher returns to the group.
"We have been actively looking at new deals. We need a bit of fire power," Jaganath said.
BRDB on Monday shed one sen to close at RM2.38 with 547,000 shares traded.
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