Questions over Bandar Raya property offer

Should Bandar Raya Developments Bhd (BRDB) sell choice assets to its major shareholders?

Ambang Sehati Sdn Bhd, which holds 18.88 per cent of BRDB, has offered to buy selected properties from the group.

These are arguably the best of the lot within BRDB's stable of assets, with The Bangsar Shopping Centre and Menara BRDB top of the list. The rest are CapSquare Retail Centre in Kuala Lumpur, and Permas Jusco Mall in Johor.

The assets are worth close to RM1 billion with BSC and Menara BRDB making up 70 per cent of the total value, according to its 2010 annual report.

Does BRDB need the money? It probably does. As at June 30 this year it has total debt of some RM769 million. It paid about RM35 million in interest last year, which is more than a quarter of its net profit in the same period.

Analysts also agree that it needs cash for further property development. It only has some RM73 million in cash and short term deposits.

But should the board of BRDB restrict the buyer to just Ambang, owned by four investors led by BRDB chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz?

It shouldn't. If the objective is to raise as much money from an asset sale, it should invite other bidders. Indeed, rumour has it that a lot of parties have approached BRDB about buying just the BSC. Having other bidders would probably help BRDB to get more money which would also benefit its shareholders.

Industry executives also say that shopping malls are currently in demand by local and foreign investors. In May, Hong Kong's Cheung Kong Group bought three Malaysian malls for more than RM400 million.

Another important question is why would BRDB want to offload assets that provide steady income to the group. It is now a common theme for developers to have that recurring base to offset lean years.

BRDB's property business made a pre-tax profit of more than RM146 million in 2010, its biggest contributor. Its manufacturing and construction business made pre-tax profits of less than RM3 million last year.

This means that Ambang or any other interested party must fork out quite a sum to compensate BRDB for lost future earnings.

In less than two weeks, the board of BRDB will have to decide on Ambang's offer. Although the promise of quick cash is tempting, ultimately, minority shareholders will have to decide since the offer is a related party deal.

By Business Times