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Wednesday, September 7, 2011

BRDB deal may be bad for minority shareholders, some analysts say

The Bangsar Shopping Centre

PETALING JAYA: Analysts are mixed on the related-party transaction announced by Bandar Raya Developments Bhd (BRDB), involving its major shareholder Ambang Sehati Sdn Bhd, which has proposed to acquire selected investment assets, including The Bangsar Shopping Centre, Menara BRDB, CapSquare Retail Centre and Permas Jusco Mall.

While some analysts say that it is line with BRDB's intention to unlock value for the group, other analysts feel that this is bad for minority shareholders as the crown jewels of the company are being taken out, and this makes the group's earnings more lumpy in the future.

In an announcement made to Bursa on Monday, BRDB's board received the letter from Ambang Sehati, which holds 19% interest in the property developer, to acquire the assets to “enable the group to monetise these assets and achieve a more efficient utilisation of its capital”, saying that the company's shares had been trading at a significant discount to its net asset value.

Under the plan, it proposes to acquire CapSquare Retail Centre, which is currently held by BRDB's wholly-owned subsidiary Capital Square Sdn Bhd; Permas Jusco Mall, owned by BRDB's 99.74%-owned subsidiary Permas Jaya Sdn Bhd; and BRDB's entire 100% equity interest in BR Property Holdings Sdn Bhd, which owns The Bangsar Shopping Centre and Menara BRDB.

The company said its board (except for Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, who is the chairman of the board, with deemed interests in the proposed acquisition by virtue of his substantial shareholding in Ambang Sehati) would deliberate on the proposed acquisition and decide on the next course of action with advice from the main adviser.

“We need to see how much they are selling the assets for. If they are selling it at fair value, then that's fine.

“To take it at book value, for instance, is not appropriate, because some of these properties were bought some time ago. It needs to be valued at market value,” said a property analyst from a local research house.

He added that monetising the assets was good for shareholders; however, “if it were monetised at below market price, then this was also not a good deal. Then wouldn't it be better off to sell these assets in the open market? I think there are potential buyers for The Bangsar Shopping Centre. This is quite a highly sought-after asset,” said the analyst.

He said while earnings from property investment were not as high as property development, it did provide stability for the company's earnings.

For the quarter ended June 30, 2011, of BRDB's revenue of RM198.9mil, RM152.05mil came from property development while RM28.25mil was generated from property investment. Operating profit derived was RM31.02mil and RM10.62mil respectively.

In the announcement, BRDB said that the purchase consideration would be based on the fair value that would be determined by independent valuers.

BRDB has up to Sept 19 to revert with its decision. This acquisition will be fully cash-funded.

Meanwhile, an analyst with OSK Research is optimistic.

He said that the potential disposal was in line with BRDB's intention to unlock the value of its assets.

“With the purchase consideration paid wholly in cash, we think it is very likely that BRDB would distribute a sizeable portion of the cash proceeds as a special dividend to its shareholders.

“As at the first half of 2011, BRDB had retained earnings exceeding RM1bil but held a cash balance of RM41mil only while a chunk of its assets were in the form of investment properties.

“We believe that by monetising its investment properties, BRDB would be able to distribute a portion of its retained earnings to shareholders as a special dividend.

“Subsequently, BRDB will end up with a leaner balance sheet, which could possibly boost its return on equity,” said the OSK analyst.

In BRDB's 2010 annual report, the three assets proposed to be sold collectively carry a book value of RM942.4mil.

By The Star

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