This article first appeared in The Edge Malaysia Weekly on March 12, 2018 - March 18, 2018

THOSE who have followed Tan Sri Syed Mokhtar Albukhary’s moves in the past would know that every few years, he undertakes an asset injection or swap involving vast tracts of land in Johor in related-party transactions.

So they would not have been surprised last week when the business tycoon’s 55.92%-owned company DRB-Hicom Bhd announced that it would dispose of several subsidiaries that own a total of 2,200 acres as well as Horsedale Development Bhd and Rebak Island Marina Bhd to Prisma Dimensi Sdn Bhd in a deal worth RM1.93 billion.

The deal will net DRB-Hicom a one-time gain of RM849 million, which looks good for the company. But it does raise questions.

Under the swap, Prisma Dimensi and its parent Kelana Ventures Sdn Bhd — private companies controlled by Syed Mokhtar — are parting with 1,243.45 acres in Tebrau, Johor, and forking out RM288.7 million cash.

DRB-Hicom says the 1,243 acres in Johor it is getting in exchange “are strategically located” close to the Johor Baru city centre, the Senai International Airport and “within the development region of Iskandar Malaysia”, which, in a nutshell, means they are as good as the parcels the company is parting with.

According to DRB-Hicom’s announcement, the parcels it is offering — in exchange for the land in Tebrau — are located in Glenmarie in Shah Alam, Glenmarie Cove in Klang, Puchong in Selangor, Jalan Tun Razak in Kuala Lumpur and Taman Klang Perdana in Klang, the last being agricultural land. Also being taken over by Syed Mokhtar are parcels of vacant commercial land together with a vehicle storage and inspection centre in Sekyen 27, Shah Alam, and an industrial premise in Batu Caves, Selangor.

“This defies the ‘location, location, location’ mantra,” a market watcher says in reference to DRB-Hicom giving up prime land in exchange for parcels in Tebrau.

Are the valuations accurate?

But then again, also being hived off by DRB-Hicom are two parcels of land — one measuring 492 acres and another 286.8 acres — in Tebrau, which alone are valued at RM848 million or almost 45% of the RM1.9 billion price tag.

However, the two companies under DRB-Hicom — Benua Kurnia Sdn Bhd and Neraca Prisma Sdn Bhd — that are selling 778.8 acres in Tebrau to Prisma Dimensi have a history.

In end-2008, Hicom Properties Sdn Bhd, a wholly-owned subsidiary of DRB-Hicom, had acquired Benua Kurnia and Neraca Prisma, which owned a total of 1,516.57 acres in Tebrau, from Datuk Ahmad Abdullah and Mohd Nazree Abu Kassim.

The acquisition price of RM722.46 million was satisfied via the disposal of five DRB-Hicom plantations — Connemara Estate, Bukit Keledek Estate, Ladang Gadek and Ladang Kupang measuring a total of about 6,882.30 acres — at RM341.742 million, the issuance of a bank guarantee facility amounting to RM238.95 million payable to Danaharta Hartanah Sdn Bhd and RM141.771 million cash.

Back then, it was said “the proposed acquisition of the development land would enable the group to immediately replenish the diminishing land bank for its future business growth and sustainable earnings”.

Much was also said about the land having good development potential due to its location and it being “ready for development in the near future, as soon as the economic conditions recover, as it has ready infrastructure that could be easily tapped”.

In the end, what it all boils down to is that within 10 years, DRB-Hicom is selling the Tebrau land it acquired in 2009 for a massive profit. The entire 1,516.57 acres had cost RM722.46 million in 2008 but now, just 778.8 acres, or about 51% of the land, are being disposed of for RM848 million.

Back in 2008, there were rumours that the two individuals who sold Benua Kurnia and Neraca Prisma were linked to Syed Mokhtar but this was unsubstantiated.

It is also known from news reports that Benua Kurnia and Neraca Prisma had acquired the said land for only RM265 million from Danaharta in 2005. Not surprisingly, DRB-Hicom’s acquisition of the land for RM722.46 million three years later raised eyebrows.

What all this means is that the value of the land seems to have risen exponentially in just 13 years.

The question, is DRB-Hicom really making a one-time gain of RM849 million? Also, what sort of time frame and investment will DRB need to unlock value in such a massive land bank in Tebrau?

Following the company’s announcement last Thursday, its stock rose 2.15% to close at RM2.38 last Friday, giving it a market capitalisation of RM4.6 billion.

Analysts’ reactions to the deal are mixed. Those who are positive say while the swap will be good for DRB-Hicom, the exercise would only be completed in the first quarter of next year.

CIMB Investment Research says it is neutral on the proposed swap as material earnings contribution is only expected in 2020.

Meanwhile, DRB-Hicom has said it plans to develop the Tebrau land into modern industrial parks.

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