LBS ... Mar10

Sources say it is in talks with HK listed Jiuzhou Development Co Ltd to divest itself of equity interest in a property development project in Zhuhai to the latter.

According to the sources, the divestment could fetch a price of at least HK$1 billion (RM438 million), or even higher should the talks bear fruit.

It is believed that the negotiations are in the final stage. The main issue now is the final pricing of the property project and other nitty gritty details.

If the deal materializes, it will be a boost for LBS which has made losses. Assuming sales proceeds of RM500 million, the money will be more than enough to settle its borrowings and will probably put LBS in a net cash position. The divestment will certainly strengthen its balance sheet substantially.

The company’s balance sheet as at Dec 31, 2009 showed that it has a total borrowings of RM308 million compared with cash plus bank deposit of rm65.8 million. Its negative operating cash flow for the past two financial years does not reflect well on its financial health.

For the financial year ended Dec 31, 2009, LBS incurred a net loss of Rm16.8 million. It had negative cash flow of Rm42 million during the year.

The cash will come in handy for LBS to launch more projects on its own turf to enhance its earnings. LBS major cost from the Zhuhai project is probably the opportunity cost, which is the potential earnings it could make from it.

Considering LBS’s financial position, it may be wise move to dispose of its 60% stake in the development project to get the injection of cash.