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Saturday, 10 June 2017

(The Star) MRCB seeks more strategic tie-ups


In progress: File picture shows construction works at Penang Sentral in Butterworth. MRCB’s future projects include PJ Sentral Garden City, Penang Sentral, Kwasa Sentral, Cyberjaya City Centre and Bukit Jalil Sentral, all of which will feature transportation connectivity at their core..
In progress: File picture shows construction works at Penang Sentral in Butterworth. MRCB’s future projects include PJ Sentral Garden City, Penang Sentral, Kwasa Sentral, Cyberjaya City Centre and Bukit Jalil Sentral, all of which will feature transportation connectivity at their core..

Developer wants to unlock the potential of its 400-acre land bank

MALAYSIAN Resources Corp Bhd (MRCB), which is in the midst of a degearing exercise, is eyeing more strategic partnerships for its property projects.

Executive director Mohd Imran Mohd Salim says the company is “always open” for tie-up with potential investors to unlock its 400 acres of land that are mainly located in the Klang Valley.

“It could be a local fund or foreign investors to partner with. We have good plots of land in the Klang Valley and we assess potential partnerships on a case-by-case basis,” he says.

Last week, MRCB roped in the Employees Provident Fund (EPF) to take up a substantial stake in the company’s Bukit Jalil project.

The EPF is buying an 80% stake in Bukit Jalil Sentral Sdn Bhd, the vehicle that owns the 76.14 acres of land in Bukit Jalil, for RM1.14bil.

MRCB will own the remaining 20% stake Bukit Jalil Sentral through its 85%-owned subsidiary Rukun Juang Sdn Bhd. The remaining 15% in Rukun Juang is controlled by former Federal Territories Minister Datuk Seri Raja Nong Chik Zainal Abidin.

The 76.14-acre land in Bukit Jalil was given by the government in return for MRCB to undertaking refurbishment works for the National Sports Complex in Bukit Jalil, an exercise that would cost RM1.39bil.

Sources say MRCB is in discussions with another government-linked investment company to develop its 1.87 acres of land along Jalan Kia Peng where the former German Embassy was located.

An executive of MRCB, while declining to provide details, says negotiations are ongoing and the company is looking at several proposals submitted by both local and foreign-owned potential partners.

The land was acquired by MRCB two years ago for RM260mil, which was equivalent to RM3,188 per sq ft.

According to MRCB’s 2016 annual report, the company plans to develop the land by 2018 and the project would potentially have a gross development value (GDV) of some RM1bil.

“Having institutional investors backing property projects would help a developer to enjoy a lower cost of funds and speed up land development,” says a property consultant.

He adds that property developers could also actively embark on several projects through joint-venture partnerships.

As for the Bukit Jalil project, it will be a drag to MRCB’s balance sheet since the group has to take bank borrowings to finance the RM1.4bil refurbishment works. Also, it will take more than 15 years for the firm to develop the land.

With the EPF subscribing into the project, the land will be free from borrowings and MRCB is appointed as the project delivery partner for the Bukit Jalil project.

The development is estimated to have a GDV of RM21bil and cost about RM14bil.

More projects in the pipeline

MRCB has a total of 400 acres of land with an estimated GDV of RM49bil. Almost half of its land bank is related to transit-oriented developments, projects that are similar to KL Sentral.

Its other future development projects are PJ Sentral Garden City, Penang Sentral, Kwasa Sentral, Cyberjaya City Centre and Bukit Jalil Sentral, and will feature transportation connectivity at their core.

“Previously, MRCB was depending on one project, which is KL Sentral. Now we have five large-scale projects that are similar to KL Sentral that are going on simultaneously,” Imran says.

Hence with five big projects in hand, fund raising is inevitable for MRCB, coupled with roping in strategic partners to reduce the impact on its balance sheet.

On May 18, MRCB announced a proposed rights issue to raise at least RM2.2bil from its shareholders, a move that would see its gearing being reduced to almost zero.

Also from the sale of the 80% stake in its Bukit Jalil project to EPF, MRCB is expected to gain RM749mil.

In total, MRCB will have RM2.95bil in proceeds to work with and to bring down its gearing.

Despite having the EPF to back up its Bukit Jalil project, Imran says the company will go ahead with the size of its rights issue as planned, and expects to call for an EGM to seek shareholders’ approval next month.

He points out that MRCB will utilise part of the money from the rights issue as an advance payment for the refurbishment of the Natio-nal Sports Complex in Bukit Jalil.

“Later, when we receive the payment from EPF for their 80% stake, we will use the money for other land acquisitions and project developments,” he says.

The proceeds could be used for land acquisition in Kwasa Damansara project in Sungai Buloh or Cyberjaya City Centre development.

The EPF is the land owner of the Kwasa Damansara. It is also the main shareholder of MRCB.

EPF has created Kwasa Land Sdn Bhd, a master developer of the massive Kwasa Damansara township sprawling over 2,330 acres of land in Sungai Buloh, of what was formerly Rubber Research Institute Malaysia land.

Taking up direct stakes in property projects by institutional funds is not unique only to MRCB.

In total, the local pension funds’ direct investments in projects undertaken by Malaysian property developers are in the tens of billions of ringgit in the past few years.

On a year to date, the EPF, which is the pioneer in this move, has entered into three such partnerships – MRCB’s Bukit Jalil project, OSK Group’s property project in Australia and Eco World Development Group Bhd’s Batu Kawan township in Penang.

Meanwhile, a new player in the space is the Retirement Fund Inc (KWAP), which signed its first equity participation in property development with Eastern & Oriental Bhd for the latter’s Seri Tanjung Pinang project in Penang in April.

For MRCB to focus on its core business – property development and construction – the company has been embarking on slew of asset monetisation programmes to reduce its debt.

This will give it the space to raise capital for project financing for the development on its land bank, working on its RM7bil construction orderbook, as well as tendering for more jobs and buying land.

As at Dec 31, 2016, MRCB’s borrowings amounted to about RM2.94bil, which includes more than RM1bil bonds linked to the Eastern Dispersal Link (EDL) highway in Johor.

MRCB has announced its intention to dispose of EDL this year and plan to sell its Menara Celcom next year.