This article first appeared in The Edge Financial Daily on March 20, 2018

KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) is disposing of a piece of freehold land in the Kuala Lumpur City Centre area to the Social Security Organisation (Socso) three years after purchasing it.

The 1.87-acre (0.76ha) land in Jalan Kia Peng here, which previously served as the site for the official residence of the German ambassador to Malaysia, will be sold to Socso for RM323 million or RM3,973.77 per sq ft.

MRCB’s wholly-owned unit Legasi Azam Sdn Bhd acquired the land from the German government for RM259.16 million in April 2015.

Since the disposal of the land is made within three years, the gains on the disposal — estimated at RM30 million — may be subjected to real property gains tax at 30%.

MRCB said the disposal allows it to focus on its bigger property development projects such as Bukit Jalil, Cyberjaya, PJ Sentral and Kwasa Sentral “and at the same time has the flexibility to reallocate its cash flows and resources efficiently among those projects”.

The proceeds from the disposal will be used for working capital and property development purposes, it added in a filing with Bursa Malaysia yesterday.

The group expects to complete the disposal by the third quarter of 2018. But it warned of a possibility that the sale may not be completed due to failure of fulfilling the conditions precedent within the stipulated time frame.

“Nevertheless, the board will take reasonable steps to ensure that every effort is made to complete the proposed disposal in a timely manner,” said MRCB.

The completion of the sale is conditional upon Socso having obtained the approval of the Economic Planning Unit to purchase the land within six months.

MRCB previously had plans for a mixed development project with a gross development value exceeding RM1 billion on the embassy land. In its announcement when purchasing the tract, the group said that the acquisition was part of its strategy to seek good opportunities to expand its operations “with a vision to create shareholders’ value by achieving strong and sustainable long-term growth”.

Thus, the decision to dispose of the primer tract comes as a surprise. However, the developer has been paring down its gearing level over the past few years by selling off non-core assets and partially divesting its investment properties.

It sold another one-acre land close to the German Embassy land in November 2016. The land was sold to Mass Rapid Transit Corp Sdn Bhd for RM180 million or RM4,132 per sq ft, after receiving notice that the alignment of mass rapid transit Line 2 crosses the site directly below the land.

MRCB’s gearing level had decreased from 188.24% in 2012 to 75.62% as at Dec 31, 2016. Meanwhile, its trailing 12-month gearing level stood at 55.05%.

The management previously said it intends to limit the group’s gearing to a maximum of 50% going forward.