This article first appeared in The Edge Financial Daily on June 21, 2017

KUALA LUMPUR: Selangor Dredging Bhd (SDB) is selling Wisma Selangor Dredging along with the land in Jalan Ampang here for RM480 million cash.

Assuming that the proposed disposal had taken place on March 31, 2016, SDB said, it is expected to give rise to a gain of RM146.8 million at the group level.

The property developer added that the proposed disposal will provide it an opportunity to unlock its investment in the property and generate immediate cash flow for the group. It will also enable the group to repay bank borrowings.

“This will result in interest savings and provide SDB group with financial flexibility to secure additional borrowings should new investment and development opportunities arise. The proposed disposal will provide additional funds for the working capital of SDB group,” SDB said in a filing with Bursa Malaysia yesterday.

SDB said it has entered into a conditional sale and purchase agreement with Golden Eagle Realty Sdn Bhd for the proposed disposal. Golden Eagle is a wholly-owned subsidiary of Nation Venue Sdn Bhd, which is jointly owned by Tan Sri Koo Yuen Kim and Koo Yoke Ying.

The proposed disposal comprises a piece of freehold commercial land together with four blocks of commercial buildings and two levels of basement car parks. It serves as the SDB group headquarters while the other floors are for lease.

SDB noted that the construction of the property was completed on Jan 16, 1987 at a total cost (including land cost) of RM61.67 million.

SDB also said the audited net book value (NBV) of the property as at March 31, 2016 was RM318 million, while its market value as appraised by Raine & Horne International Zaki & Partners Sdn Bhd stood at RM372.1 million as at May 15, 2017.

Thus, the disposal consideration is a 50.9% premium over the audited NBV and a 29% premium over the market value.

“The disposal consideration was arrived on a willing-buyer-willing-seller basis after taking into consideration the market value of the property,” said SDB.

Out of the gross proceeds from the proposed disposal, RM248.75 million will be used to settle outstanding debts owed to Public Bank Bhd, RM103.07 million for working capital, RM19.2 million to repay borrowings and RM20.59 million for real property gains tax payable pursuant to the transaction.

The company also intends to distribute RM80.96 million of its proceeds to shareholders via a special cash dividend where the entitlement date will be determined and announced later by the board. The rest will be used to defray expenses relating to the proposed disposal.

For the financial year ended March 31, 2016, the rental income from Wisma Selangor Dredging was RM14.56 million, representing 31.07% of the group’s audited pre-tax profit.

“Barring any unforeseen circumstances, and subject to the required approvals being obtained, the proposed disposal is expected to be completed in the first quarter of 2018,” said SDB.