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Open tender for BRDB assets

PETALING JAYA: In a win for minority shareholders, the proposed asset disposal exercise by Bandar Raya Development Bhd (BRDB) to its major shareholder Ambang Sehati Sdn Bhd has been now scrapped and will be undertaken by an open tender system, after analysts and the media pointed out that minority shareholders could be on the losing end should the deal go through without opening it to other competing bids.

On Sept 5, BRDB announced that it has received a proposal to acquire four of its assets by Ambang Sehati namely the Bangsar Shopping Centre (BSC), Menara BRDB and CapSquare Retail Centre in Kuala Lumpur, and the Permas Jusco Mall in Johor Bahru. The offer for a total of RM914 million, comprising RM430 million in cash and RM484 million in net liabilities, was accepted by the board of BRDB at the end of Ambang Sehat's two-week deadline on Sept 19.

"At a meeting on Sept 26, the board of directors of BRDB and representatives of Ambang Sehati have met and deliberated on the misconceptions, views and concerns of the various stakeholders which have been raised subsequent to the announcement on Sept 19, in relation to the proposed disposal," the announcement read.

The board also mentioned that it has taken into consideration the expression of interests received from "credible parties that have been communicated since the announcement on the proposed disposal". This appears to signal that there may be other bidders interested in the assets.

The announcement said both the board and Ambang Sehati have agreed to cease all negotiations, and the board will dispose of all the relevant selected assets by way of a tender exercise, in which Ambang Sehati will be invited to participate. The board will appoint an independent international property valuer to manage the tender exercise, while an announcement on the tender will be made at an appropriate time, it stated.

"The board's intention has always been to enter into transactions that would ultimately improve our shareholders' value. We have always been fully aware that since this is a related party transaction involving a major shareholder of the company, it would attract greater interest and scrutiny from the public and have taken great care to ensure the offer was properly evaluated and analysed to ensure the best possible terms for the company and our shareholders," according to Datuk Jagan Sabapathy, CEO of BRDB.

Apart from it being a related party transaction and the lack of an open bidding process, the proposed disposal was also seen by some stakeholders as not priced high enough, especially for BSC and Menara BRDB, the company's most prized assets and which contributed 16% to BRDB's gross profits last year.

The two assets were to be sold for RM700 million, or 1.06 times its book value of RM660 million as at end-December 2010. BR Properties Holdings Sdn Bhd, which is the owner of BSC and Menara BRDB had already seen its revenue jump to RM34.81 million in 2010 as opposed to RM18.93 million in 2009.

"In FY10, the assets contributed about 16% to BRDB's gross profit. From FY12 onwards, the impact on BRDB's earnings will be rather neutral or slightly negative given that the loss of rental income from the investment assets will be partly compensated by the savings in interest costs as BRDB proposes to utilise some RM300 million from the proceeds to repay of some of its borrowings," noted OSK Investment Research.

Jagan said the board was convinced the disposal of the assets would bring benefits to the company and its shareholders as it will unlock the value of the company's investments, reward its shareholders and pare down its current borrowings up to 60%. It has proposed to pay a one-off dividend of 80 sen after the exercise.

With the assets now being put on open tender, and the tender exercise to be carried out by an independent international property valuer, the asset disposal exercise will gain a sense of transparency and fairness for minority shareholders, as it will be open to external bids that will hopefully maximise returns on these assets.

The more interesting question will be, who will bid for these assets? And at what price? BRDB says Ambang Sehati will be invited to participate in the tender, but it is not clear if the latter will raise its bid — or possibly offer a lower price in view of the recent heightened economic uncertainties and stock market slump, and if it is confident there will be no other bidder.

While analysts and observers may have lamented at the pricing and the lack of a transparent and open bidding process earlier, the reality is that it may also have difficulty finding deep-pocketed potential buyers willing to fork out close to RM1 billion for property assets in the current environment.

With foreign investors largely absent from Malaysia's property scene, potential suitors are likely to be limited to government-linked companies or large real estate investment trusts.

At the end of the day, the asset disposals will still be dependent on BRDB's fragmented minority shareholders, many of which park their stakes in foreign nominee accounts. The single largest  shareholder is a nominee account with Credit Suisse holding a 23.6% block, whose ultimate owner is undisclosed.

Since the announcement on the proposed disposal, the stock has plunged by 23.53% from RM2.38 on Sept 19 to Monday, Sept 26's closing price of RM1.82, attributed in part to the global stock market sell-off.

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