F&N’s loss, MRCB’s gain

  • Business
  • Saturday, 12 Apr 2003


CLEARLY, Malaysian Resources Corp Bhd (MRCB) does not like to waste time. Having only just completed the acquisition of Landas Utama Sdn Bhd, which owns 24.9 per cent stake in Uda Holdings Bhd, it is now eager to tap the expertise that has become readily available.  

That in a nutshell wraps up MRCB's greatest motivation of what seems like a speedy purchase of a 50 per cent interest in a joint venture company (in which it already owns 50 per cent) from Fraser & Neave Holdings Bhd and a related company for RM2.5 million. 

The joint venture company – Harmonic Fairway Sdn Bhd – was set up six years ago to acquire and develop a piece of land located at KL Sentral, Brickfields.  


Most importantly, it is the only designated integrated retail project in the entire project that spans 72 acres. 

“Think about it. What is Uda Holdings good at?” asks an industry source.  

“MRCB wants to tap as fast as it can Uda's expertise which will come in handy for this particular integrated retail development,” he continues.  

And it has worked out well for MRCB, which managed to gain control of the entire project at a very attractive price. 

The joint venture company (JVC) has the right to jointly develop the retail mall, hotel, corporate apartment and the office component. 

Work on the project is expected to begin this year and will likely take three years to complete. 

It's a well-known fact that MRCB is aggressively positioning itself as a major property developer in the country. Fitting snugly into this aspiration is the recent acquisition of Uda Holdings.  

“MRCB, with Uda under its umbrella, has overnight transformed into a major urban property giant with building assets and more than 1,000 acres of development land bank in Klang Valley and Johor, worth close to RM2 billion market value,” says AmResearch. 

The research house is evidently positive on the acquisition but adds that MRCB management would have to turn Uda into a more profitable entity. That looks set to take shape in the months to come. 

On the other hand, interestingly, not many analysts have bat an eyelid on the fact that Fraser & Neave Holdings Bhd is getting out of the project at a loss.  

As a result of the disposal, F&N Holdings will incur an exceptional loss of RM20 million for the current financial year that translates into a loss of 5.6 sen per share.  

True, property development is indeed not F&N's core business of and that being the case, an analyst cries out: “Then, why did it even get into it in the first place?”  

To be fair, the boom in the property market pitched its appeal to many corporations who felt compelled to have a slice of the action. But that was then. 

“Look around. It's almost impossible for companies to sell a non-core business these days at a profit. If you subscribe to the belief that the companies should wait to get out at a profit, then it's almost wishful thinking,” says an industry observer. 

MRCB understands this only too well. It embarked into financial services in the early 90s, only to have realised years later that it was a big mistake. It paid the price too. MRCB sold its interest in Rashid Hussain Bhd and made a huge exceptional loss.  

“Sometimes one has to suffer that short-term pain for the good of the company. Otherwise, you are spending resources and management time on a business that is non-core and that's an unhealthy distraction,” says an observer. 

BizWeek sent a list of questions to F&N group chief executive officer Tan Ang Meng.  


BizWeek: It seems very much as if F&N is in a rush to sell its interest in this project. Why exactly? 

F&N: We entered this joint venture prior to the Asian economic crisis of 1997.  

That was seven years ago, so we feel it is incorrect to characterise our divestment decision as one made in a “rush”. 

One can appreciate the fact that F&N is keen to unload a non-core holding, but given that it will be incurring a loss from the transaction, wouldn't it have been more worthwhile to hold out for a better price? 

For the past seven years we have been working hand in hand with our JV partners to review the feasibility of this project. During that time the economic environment has changed significantly and this will continue to be volatile.  

Our board's view is that shareholders' interests are better served by concentrating our attention on our core businesses. 


F&N mentioned in the announcement that it is in the best interest (of shareholders) to undertake the sale given that there is a ready offer. But what gives F&N the impression that if you waited a little longer, you will have no (other) offers for the project? 

Over the seven years that we had maintained the KL Sentral investment, we explored many options. We also considered bringing in other interested parties.  

But we found that yields did not meet our board's criteria for returns on investments. Thus MRCB's offer to buy our KL Sentral stake was viewed as an opportune way of exiting the project. 


Why did F&N get into the property development project in the first place? 

In 1996-97 we saw the opportunity to broaden our income stream as we could find a new business niche with the help of our associated company, Centrepoint Properties, which has vast experience in shopping mall management and that would satisfy our investment benchmarks.  

However, along with many others, we were unable to predict the onset of the Asian economic crisis of 1997, or its enduring impact on the property sector. 


It seems very much that the transaction benefits MRCB more than F&N, given the pricing issues and the benefits it will accord MRCB.  

Given the circumstances we have described, and taking into consideration the core businesses of the JV partners, we consider the divestment to MRCB to be a win-win one for both parties to the transaction.  

In our case, it releases us from further investment into a project that is unlikely to meet our expectations with regard to yields. It also enables us to devote all our energies to growing our existing business and maximising returns from them. 


F&N seems to have paid a hefty price for the acquisition. Why so?  

The price paid seven years ago was in line with market valuations of a prime property at the time. 


The sale and its timing seem to reflect F&N's lack of confidence in the prospects of the project, otherwise why sell and make a loss?  

The transaction was effected on a willing buyer willing seller basis. This indicates that both parties viewed it as beneficial to their respective long-term strategies and shareholders' interests.  

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