KUALA LUMPUR: Hong Leong Financial Group Bhd (HLFG) has proposed to acquire Hong Leong Bank Bhd’s (HLBB) Menara Raja Laut building and the parcel of land it sits on for RM220 million cash.

HLFG’s (fundamental: 2.6; valuation: 2.4) indirect 70%-owned subsidiary Hong Leong Assurance Bhd (HLA) yesterday entered into a sale and purchase agreement with HLBB (fundamental: 2.8; valuation: 2.2) for the proposed acquisition, the banking and financial group told Bursa Malaysia in a statement.

It said the RM220 million price tag for the office building in Jalan Raja Laut, Kuala Lumpur, will be fully funded by HLA shareholders’ funds.

According to HLFG, it has obtained approval from Bank Negara Malaysia for the proposed acquisition and it is now pending shareholder approval.

The proposed acquisition is expected to be completed by the first half of this year.

Currently, 41% of the office building is occupied by tenants, 36% of which comprises HLBB and its subsidiaries. Part of the land is leased to Tenaga Nasional Bhd (fundamental: 1.3; valuation: 1.8).

Upon completion of the proposed acquisition, HLBB is expected to lease its occupied office space from HLA with a rental payment of about 

RM5.14 million per year, said HLFG.

HLFG said the proposed acquisition is in line with HLA’s “strategic asset allocation” as it may provide long-term yield and/or capital appreciation potential.

The group added it may consider proposals to refurbish and redevelop the building, including collaborations with a property developer to do so.

HLFG shares ended 10 sen or 0.6% lower to RM16.90, translating into a market capitalisation of RM17.9 billion.

This article first appeared in The Edge Financial Daily, on April 7, 2015.