Property valuer comes to Benalec's defence

WHILE some minority shareholders are decrying the RM28 per sq ft (psf) ascribed to Benalec Holdings Bhd's 79.49 acres of land in Melaka as being below market value, a real estate valuer has come to the defence of the company, contending that the price is fair.

Teh Hong Chua, the manager of CH Williams Talhar & Wong Sdn Bhd's Melaka branch, says it would be difficult to get buyers for the land at more than RM30 psf. "This is because the land is still unstable and there is no infrastructure such as roads and a drainage system, to justify a higher market value," he says.

"It is reclaimed land, so it will take about two to three years to stabilise before any infrastructure can be installed. Once the infrastructure is in place, the land can be sold at a higher price."

At RM28 psf, Benalec would make a gain of at least RM13 psf, based on a rough calculation. This is based on the average reclamation cost of RM8 to RM10 psf, with a contract margin of RM4 to RM5 psf, as indicated by the company in a previous interview.

Benalec has come under scrutiny for disposing of the 79.49 acres to companies in which its executive director and major shareholder Datuk Leaw Tua Choon has interests. The Leaw family is the largest shareholder of Benalec, through Oceancove Sdn Bhd, with a 53.21% stake.

Some minority shareholders claim that the sale to Oceancove Development Sdn Bhd, Strategic Property Sdn Bhd and Oceanfront Development Sdn Bhd did not reflect the true value of the land. They argue that the land should have been sold at a higher price because it is located just 2.5km from Melaka city centre and is sea-fronting.

According to Benalec, the transaction value of the land deal at RM96.95 million represented a premium of about RM10.38 million, or 12% over the valuation of RM86.57 million ascribed to the land, as determined by the independent valuer. However, this has not assuaged some minority shareholders who insist that the land should fetch a higher price of between RM30 and RM37 psf.

"We think the land sale should have been tendered out instead of being sold to a related party. But we could not do anything. We could not stop them; we could only vote against the motion," says a minority shareholder who attended the EGM.

In an email reply to questions by The Edge, Benalec's management says it approved the deal not because there weren't any competing offers but because it was the best available offer at the time.

"We received other offers from third parties to buy the same parcel of land. However, after due consideration of all the offers presented, the board was satisfied that the offer made by the related party was the best offer at that point in time. Especially in terms of the settlement of the disposal consideration, which consists entirely of cash payment along with a higher initial deposit — namely 30% of the disposal consideration — as opposed to the normal 10% down payment," it explains.

Prior to the deal, Benalec had carried out two comparable disposals of reclaimed land in Melaka. In August 2011, the group disposed of 37.36 acres in Klebang Besar, located about 7km west of Melaka city, to an unrelated party for RM45.57 million or RM28 psf. And in February 2012, it disposed of 9.07 acres, some 5km southwest of Melaka city, to a non-related party for RM17.78 million or RM45 psf.

According to Kenanga Investment Bank, the higher price ascribed to the land closer to the town centre was because of its relatively small size. A larger parcel of land is normally transacted at a lower price psf compared with a smaller parcel in the same location, it explains.

To ensure that the deal was in the best interests of the group, Benalec's management says it took all the necessary steps required by the market regulators. This included appointing independent valuers and advisers, as well as submitting the proposal to Bursa Malaysia for approval.

"In eliminating the possibility of a conflict of interest in the decision-making process pertaining to this related-party transaction, Datuk Leaw Tua Choon and persons connected to him were required to abstain from deliberating and voting on the transaction," says Benalec.

The grouses raised by some of the minority shareholders could be attributed to the less than satisfactory level of dividends paid out over the last two financial years. For FY2011 ended June 30, Benalec declared and paid a regular cash dividend of two sen per share, translating into a yield of 1.43% based on the group's average share price of RM1.40 during the year.

In the following financial year, the group declared and paid a cash dividend of three sen — an increase of 50% from the previous year, translating into a yield of 2.36% based on its average share price of RM1.27 during the period.

For the nine months ended March 31, Benalec proposed a three sen dividend, which translates into a yield of 2.4% based on its average share price of RM1.25.

"Benalec should develop the land so that it can fetch a higher price. It should focus on paying higher dividends too," says a minority shareholder who attended the EGM to vote against the motion.

This story first appeared in The Edge weekly edition of June 17-23, 2013.

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