KUALA LUMPUR: Land & General Bhd (L&G) is giving its minority shareholders a hard question to answer — whether they should vote for or against the proposed asset injection by its ultimate controlling shareholder Malaysia Land Properties Sdn Bhd (Mayland).
The cash-rich developer has proposed to take over five property firms from Mayland for RM344 million cash. The acquisitions would inject new property development projects and land bank into L&G — a move that is expected to cultivate earnings in the long term.
L&G is making a cash call to raise up to RM402 million to fund the purchases, instead of tapping into its large cash coffers of RM471 million. Netting off its borrowings, L&G was sitting on a net cash position of RM393.4 million, or about 35 sen per share as at Dec 31, 2016.
Mayland wholly owns Mayland Parkview Sdn Bhd, which holds a 30.71% stake in L&G.
“Instead of using the cash pile that we have for the acquisition, we are giving all our shareholders an equal opportunity to participate in the proposed acquisition,” Low Gay Teck, managing director of L&G, told The Edge Financial Daily in an interview.
Low explained that the rationale for not utilising the company’s cash pile is a step to prove that Mayland is committed to pump in fresh capital into L&G; the asset injections are not a way to strip off cash from the company.
L&G will use its internally generated funds or bank borrowings for the acquisitions if the proceeds raised from the proposed rights issue fall short of settling the full purchase consideration.
The proposed rights issue is at an indicative price of 21 sen per rights share, with the ratio of eight rights shares for every five existing L&G shares held on the entitlement date.
Low shared that the indicative price of 21 sen represents a 22% discount from theoretical ex-rights price, which was deemed to be an attractive discount to entice minority shareholders to subscribe for the rights issue.
Mayland is giving the undertaking to subscribe for up to 820 million rights shares, which will cost it RM172.2 million, if some minorities decline to participate in the cash call. After netting off the sum for rights issue subscription, Mayland is expected to pocket RM171.8 million cash from the asset sales.
According to Low, the proposed acquisitions are expected to augur well for L&G as it enables the company to replenish its land banks for immediate and future developments, which are located strategically in the Klang Valley area in an expeditious manner to take advantage of the current property market slowdown.
Nonetheless, the proposed acquisitions, which were announced in mid-November last year, seem to have added fuel to the downtrend of its share price that started in late September. The stock slid to a low of 29 sen on Nov 30 after the announcement. It closed at 31.5 sen last Friday.
Under the proposal, L&G will take over the entire equity interest in four companies from Mayland, namely, Primal Milestone Sdn Bhd (PMSB), Quantum Bonus Sdn Bhd (QBSB), Forward Esteem Sdn Bhd and Triumph Bliss Sdn Bhd.
PMSB and QBSB have an existing 43% and 2% shareholding in Country Garden Properties Malaysia Sdn Bhd (CGPM), with the remaining 55% held by Country Garden Real Estate Sdn Bhd (CGRE), which is wholly-owned by China-based Country Garden Holdings Co Ltd. CGPM was a joint venture between Mayland and CGRE.
These companies’ property developments are targeting the middle- to upper-income groups, Low said.
The acquisitions will also see a more diversified portfolio for L&G as the target companies include Country Garden’s Diamond City project in Semenyih, Serendah in Rawang, Seri Kembangan as well as Ukay Ampang. All these parcels are situated in prime areas with matured developments in Selangor. The optional agreement also allows L&G to see a development in Taman Sri Hartamas, Kuala Lumpur.
L&G currently has projects worth a gross development value (GDV) of RM3 billion to RM4 billion in the pipeline. The proposed acquisitions will add RM4.2 billion GDV based on the estimated value in August last year into its pipeline.
Low said in the past L&G meticulously searched to secure land banks that could add further value to L&G’s future growth. The new projects and tracts brought in by the proposals will be the next growth engine, if the minority shareholders approve them.
Interestingly, this is not the first time that L&G is involved in a related party transaction (RPT).
In 2013, L&G bought a 13-storey office block in Precinct 3, Putrajaya for RM72.5 million from Mayland Avenue Bhd, another wholly-owned unit of Mayland.
The transaction came with a two-year rental guarantee of RM3.7 million annually. However, the building is currently not occupied. It is a stark reminder of the risks that L&G shareholders could be taking with the bigger sum involved in the latest proposed acquisitions.
Back on the latest proposals, minority shareholders may question the urgency for the acquisitions given that L&G has projects with GDV of at least RM3 billion in hand. Furthermore, the rights issue may puzzle the minorities given the company’s big cash pile.
Low pointed out that L&G intends to reward its shareholders as reflected in its dividend payouts of two sen in the last three financial years, which translats into about 6% dividend yield.
L&G will hold an extraordinary general meeting to seek shareholders’ approval for the proposals on March 15. Is this an income generative deal? L&G minorities will have to comb through the circular to find out more; but it is certain that Mayland will unlock some asset values through the proposed acquisitions.