Land deal to reduce MRCB’s debt levels, says MIDF

KUALA LUMPUR: MIDF Research sees EPF’s offer to acquire MRCB’s land in Bukit Jalil as a “potent antidote” to the latter’s debt level of RM4.7bil. 

Once the offer and placement exercise is complete, the research house said it expects MRCB’s total debt to reduce to about RM3.7bil. 

EPF reportedly offered to buy 80% of MRCB’s stake in a parcel of land from a total of three lands for a consideration of RM421.5mil, working out to RM430 per sq ft on average. The payment consideration will be paid in two tranches of RM397mil and RM25mil based on the total of 1.2m sq ft.

Recall that MRCB won the bid to develop the National Sports Complex for a sum of RM1.6bil in exchange of three parcels of land in Bukit Jalil amounting to 33.7ha for Ministry of Youth and Sports, Malaysia. The 3 parcels of land is held by Rukun Juang Sdn. Bhd which 85% owned by MRCB Land.

Separately, MRCB announced that it has completed the first tranche of the shares placement of 100 million shares from 493 million shares at RM1.09 per share. “The placement is an acid test to determine the response of MRCB’s business prospect by the Street. Thus, with the completion of the first trance we surmise that the remaining tranches of placement will not teeter,” said MIDF in a note on Wednesday. 

Therefore, the company can concentrate on developing large projects such as Kwasa Damansara MX-1 as its financial headroom is expanded. MRCB’s earnings is expected to be stable backed by projects such as Penang Sentral, Kwasa Damansara MX-1 and as well as its current construction orderbook of RM1.58bil. 

“In our view, as opposed to the news, the land transaction will take less than 18-months instead of two years to effect due to land transfer instead of regulatory issue such as development order and plot ratio from DBKL as the development proposal has been included in KL Sports City plan,” said MIDF.

It also estimates that the share placement exercise will be completed by the first quarter of the 2017 financial year. 

MIDF maintains its Buy call with an adjusted target price of RM2.10, reflecting the DCF of toll concession, RNAV of property development projects; book value of investment properties and earnings multiples over recurring businesses and enlarged share capital the recent share placement exercise.