Wednesday, September 28, 2011

BRDB ...Sep11

The fate of BRDB’s proposed asset divestment plan is largely in the hands of offshore
investors, including the company’s single largest shareholder that owns a 23.57% equity stake held by Credit Suisse.

The 23.57% equity stake in BRDB held by Credit Suisse is an omnibus account which consist of a few nominees. An omnibus account is one which consists of individual accounts that are combined into one account, allowing for easier management.

Its board has accepted the offer from major shareholder, Ambang Sehati Sdn Bhd, to acquire four of BRDB's investment assets for RM430 million net of liabilities of RM484 million. Following the proposed disposal, BRDB would distribute part of the proceeds to the shareholders via a net cash dividend of 80 sen per share.

Among shareholders with over 3% equity stakes, foreign offshore nominee accounts collectively held about 60.9% shareholding in BDRB. The ultimate owners of these shares were not disclosed in the annual report.

It is not known who ultimately owns the big block of 114.6 million shares that are parked under HSBC Nominee (Asing) Sdn Bhd for Credit Suisse. Even BRDB CEO Datuk Jaganath Sabapathy said he does not know who the company’s largest shareholder is when asked at Monday’s media briefing.

Ambang Sehati Sdn Bhd, which has an 18.9% stake, will abstain from the voting on the proposed asset sale. BRDB chairman Datuk Mohamed Moiz controls Ambang Sehati. Logically, this means BRDB shareholders who hold the remaining 81.1% shareholding would cast their votes at an EGM to be convened later.

And among them, foreign shareholders would be the largest group to decide on whether to permit the BRDB board to part with the company’s four investment properties, including its crown jewel Bangsar Shopping Complex (BSC) for a total consideration of RM914 million, comprising RM430 million cash and net liabilities totalling RM484 million to be assumed by Ambang Sehati.

Meanwhile investors have raised concerns over the lack of clarity on the ownership of a 23.6% block of shares in Bandar Raya Developments Bhd (BRDB) that will hold sway in determining the success or failure of a proposed asset sale to a related party. The authorities need to determine the ultimate shareholder of this nominee account and whether this block of shares is held by a related party.

The largest shareholder of BRDB is the nominee account for Credit Suisse which holds the 23.6% block. MSWG pointed out that this stake amounted to 30% of total disinterested shareholders of BRDB and that “it could be implied that this 30% block may determine the outcome at the EGM as it might comprise more than 50% of the shares of disinterested shareholders actually attending and voting.” BRDB's proposal requires only a simple majority of disinterested shareholders votes to proceed.

Other issues are that BRDB stands to “lose earnings” if the assets are disposed of. The assets contributed RM10mil to the group for FY10. The loss of future stable earnings could be greater than RM10mil per year if rental rates increase and the occupancy rates at CapSquare Retail Centre, BSC and Menara BRDB improve. Therefore the pro (benefit) of interest savings is negated.”

MSWG also questioned the “urgency” in BRDB selling its assets, considering that the board had accepted the offer merely two weeks after the receipt of the offer. BRDB should consider calling for open bidding for the assets and a reasonable time be allocated for that process.

MSWG quoted that the market value for Menara BRDB and BSC as provided by the independent valuer was on the basis of 30% occupancy. BRDB wishes to clarify that the independent valuation of BSC was based on an occupancy rate of 95% while the valuation for Menara BRDB is based on current occupancy rate of 70% and projected long-term occupancy rate of 95%. BSC and Menara BRDB are valued by CH Williams Talhar and Wong.

Going Forward … It is looking to participate in more government-linked property developments, as it
looks to become a full-fledged property player.

BRDB has put in a bid to participate in the Rubber Research Institute (RRI) land in Sungai Buloh as well as the Lever Brothers site in Bangsar. It is among parties that have been shortlisted to put in their proposals for the Lever Brothers land.

BRDB also aims to deliver property developments worth RM1bil in gross development value (GDV) every year, starting from its year ending Dec 31, 2012.

If BRDB's proposed disposal of BR Property Holdings Sdn Bhd which owns Bangsar Shopping Centre (BSC) and Menara BRDB, CapSquare Retail Centre and Permas Jusco Mall for the indicative value of RM914mil goes through, the company will be a lot leaner and will be in a position to capitalise on opportunities. Its gearing automatically drops from about 0.7 time (x) to 0.38x.

The master developer of the RRI land is Kwasa Land Sdn Bhd (KLSB), a 100% subsidiary of the Employees Provident Fund. The development, over 3,300 acres, will consist of an integrated township with a mix of residential, commercial and industrial properties and has been dubbed as the new Klang Valley hub.

BRDB's proposal is skewed more towards residential developments on the RRI land, while for the Lever Brothers land, it will be a mixture of residential and commercial. The Lever Brothers land's, over 20 acres, has been empty since Unilever Malaysia moved out in 2003. Pelaburan Hartanah Bumiputra, a government unit formed to foster bumiputra ownership of property presently owns this prime land.

Currently, BRDB has RM10bil worth of jobs at hand and is expected to be kept busy over the next 3 to 5 years.

For the next two financial years, BRDB will recognise GDV from its projects in Verdana, BluWater, Medang Serai and Elita of The Straits View Residences in Johor.
Jagan said BRDB would maintain its core team to manage BSC.

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