PROPOSED ACQUISITION OF 22,821,001 ORDINARY SHARES OF RM1.00 EACH REPRESENTING SIXTY PERCENT (60%) OF THE EQUITY INTEREST IN GSB SENTRAL SDN. BHD. (“GSSB”) TOGETHER WITH 17,910,000 REDEEMABLE PREFERENCE SHARESOF RM0.01 EACH IN GSSBFROM GAPURNA SDN. BHD. (“GAPURNA”), FOR A PURCHASE CONSIDERATION OF RM105 MILLION (“PROPOSED ACQUISITION”)
- INTRODUCTION
The Board of Directors of MRCB (“Board”) wishes to announce that MRCB had on 30 June 2010 entered intoa conditional ShareSale Agreement(“SSA”) with Gapurna in relation to the Proposed Acquisition, the particulars of which are set out in the ensuing sections below.
- DETAILS OF THE PROPOSED ACQUISITION
2.1Particulars
Pursuant to the SSA, MRCBwill acquire all the shares held by Gapurna in GSSB amounting to 22,821,001 ordinary shares of RM1.00 each, representing 60% equity interest in GSSB together with 17,910,000 redeemable preference shares of RM0.01 each (“the Sale Shares”) for a total purchase consideration of RM105 million (“Purchase Consideration”).
Upon completion of the Proposed Acquisition, GSSB will become a wholly-owned subsidiary of MRCB.
2.2Background information of GSSB
GSSB was incorporated in Malaysia under the Companies Act, 1965 (“Act”) on 9 October 2006 as a private limited company under its present name. As at 31 May 2010, GSSB has an authorised share capital of RM100 million comprising 50 million ordinary shares of RM1.00 each and 5billion redeemable preference shares of RM0.01 each, of which 38,035,001 ordinary shares of RM1.00 each together with 44.61 millionredeemable preference shares of RM0.01 each have been issued and paid.
GSSB, principally engaged in property development, is the legal owner of a piece of land fronting Jalan Brickfields, held under Geran 40094, Lot 348, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan (“Lot 348”).
Lot 348 is approximately 91,040 square feet (“sf”) which has been approved for a mixed development of office and service apartments with total gross floor area (“GFA”) of 1,468,277 sf having an estimated Gross Development Value (“GDV”) of RM850 million. The development on Lot 348 commenced in March 2009 and is expected to be completed by the fourth quarter 2012.
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2.3Salient terms of the SSA
The salient terms of the SSA are as follows:
(i)the SSA is conditional upon the fulfilment of the conditions stated in the agreement within three (3) months from the execution of the SSA.
(ii)the written consent of the syndicated lenders for the sale and transfer of the Sale Shares from Gapurna to MRCB has been obtained by Gapurna;
(iii)MRCB, with any necessary assistance from Gapurna, has obtained all necessary written approvals/confirmation from the syndicated lenders confirming that, upon the transfer and registration of the Sale Shares in the name of MRCB, Gapurna or its directors and shareholders will immediately be released and discharged from all guarantees and other security given by them to secure the syndicated term loan of RM460 million from the syndicated lenders;
2.4Satisfaction/Payment of the Purchase Consideration
Upon execution of the SSA, MRCB shall pay Gapurna RM10.5 million which is equivalent to 10% of the Purchase Consideration as deposit.
The balance of the Purchase Consideration shall be paid in the following manner:
(i)RM42.0 million shall be paid on completion of SSA which will take on the 10th business day after the last conditions precedent is fulfilled in accordance with the SSA, i.e., the Unconditional Date; and
(ii)RM52.5 million shall be paid 9 months after the Completion of the SSA.
2.5Basis of arriving at the Purchase Consideration
The Purchase Considerationwas determined on a willing buyer-willing seller basis after taking into consideration MRCB’s previous investment of 40% equity interest in GSSB for RM40.4 million acquired in December 2007,the prevailing market value of the land without any development on Lot 348, the deferred payment scheme for 50% of the Purchase Consideration and the prospect of GSSB (please refer to paragraph 4).
A valuation of the land on Lot 348 was performed by an independent professional valuer in November 2008 for the purpose of financing. In June 2010, an update valuation was performed to reconfirm the market value of the land assuming without any development of approximately RM110 million.
2.6Historical financial information
The summary of the financial performance of GSSBsince its incorporation is as shown below:
Audited / Unaudited9 October 2006 to 31 December 2007 / FYE 31 December 2008 / FYE 31 December 2009 / 5-months period ended 31 May 2010
RM’000 / RM’000 / RM’000 / RM’000
Revenue / - / - / - / -
Operating loss / (153) / (534) / (6,232) / (1,529)
Loss before taxation / (153) / (534) / (6,232) / (1,529)
Taxation / - / - / - / -
Loss after taxation / (153) / (534) / (6,232) / (1,529)
No. of ordinary shares in issue (‘000) / 38,035 / 38,035 / 38,035 / 38,035
Net loss per ordinary share (RM) / * / (0.01) / (0.16) / (0.05)
Net assets / 37,882 / 37,348 / 75,725 / 74,201
Total borrowings / - / - / 52,729 / 74,482
Note:
* Less than 1 sen
2.7Satisfaction of Purchase Consideration
The Purchase Consideration will be paid in cash raised throughinternally generated funds and bank borrowings.
2.8Assumption of liabilities
Save for the potential contingent liabilities and/or guarantees to be extended by MRCB in relation to the financing of the development of Lot 348, there are no other liabilities, to be assumed by MRCB pursuant to the Proposed Acquisition.
3.RATIONALE FOR THE PROPOSED ACQUISITION
The Proposed Acquisition provides an opportunity for MRCB to consolidate its investment in strategic properties to expand the Group’s recurring earnings with good potential capital appreciation in the near future. Since Lot 348 is adjacent to the KL Sentral Development, this acquisition could be perceived as an extension to the existing KL Sentral development.
4. PROSPECTS
Prospects of GSSB
The Proposed Acquisition will allow MRCB to hold 100% of the equity interest in GSSB and thus have full control over its management and operations and reap the full benefits of all future revenues and profits. The Board believes that the Proposed Acquisition represents a good opportunity to further strengthen the future income of MRCB Group.
The Board also believes that the prospects of GSSBare positive given that in April 2009, GSSB and Shell People Services Asia Sdn Bhd (“Shell”) signed an Agreement to Build & Lease (“ATL”) whereby GSSB will build an office tower in accordance with the agreed specification by Shell and on completion for Shell to execute a Lease Agreement to lease over a 15 year period.
Furthermore, the office tower will be designed and built using strategies aimed at achieving an ecologically sustainable building to meet the certification GOLD Level of the “Leadership in Energy and Environmental Design (LEED) Green Building Rating System” by the U.S. Green Building Council.
In addition, in September 2009, GSSB and Ascott International Management (Malaysia) Sdn Bhd (a member of Capital Land, Singapore), a well established serviced apartments and residences brand spreading throughout the world, signed the Service Residence Management Agreement and Technical Agreement for the latter to advice on the development of the service apartments and to manage the building upon completion.
5.RISK EVALUATION
Shell has signed the ATL in April 2009to lease a minimum office space of about 60% of total net lettable area.There is potential risk that Shell not signing the Lease Agreement on completion of office development and accordingly may affect the estimated GDV of the development and anticipated return from the Proposed Acquisition.
6. HIGHEST PERCENTAGE RATIO
The highest percentage ratio applicable for the Proposed Acquisitionpursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad(“Bursa Securities”) is 15.63% which is derived based on the total Purchase Consideration amounting to RM105 million compared with MRCB’s audited consolidated net assets attributable to equity holders of RM671.92 million as at 31December 2009.
7. EFFECTS OF THE PROPOSED ACQUISITION
7.1 Share capital and substantial shareholders’ shareholdings
The Proposed Acquisitionwill not have any effect on the issued and paid-up share capital of MRCB as well as its substantial shareholders’ shareholdings as the Proposed Acquisitiondoes not involve any issuance of shares.
7.2 Earnings
The Proposed Acquisition is not expected to have any positive effect on the future earnings and earnings per share of MRCBGroup for the financial year ending 31 December 2010.
7.3 Net assets and gearing
The proforma effects of the Proposed Acquisitionon the consolidated net assets and gearing of MRCB based on the latest audited financial statements as at 31 December 2009 are shown below.
Audited consolidatedas at 31 December 2009 / After Proposed Acquisition
RM’000 / RM’000
Share capital / 907,625 / 907,625
Share premium / 79,913 / 79,913
Currency translation reserve / (49) / (49)
Share option reserve / 7,835 / 7,835
Accumulated losses / (323,405) / (323,405)
Net assetsattributable to equity holders of MRCB / 671,919 / 671,919
No. of shares in issue (‘000) / 907,625 / 907,625
NA per share (RM) / 0.74 / 0.74
Borrowings / 1,643,009 / 1,695,738
Gearing ratio (times) / 2.4 / 2.5
8. APPROVALS REQUIRED
The Proposed Acquisitionis subject to such consents and approvals being obtained as detailed out in the SSA.
No approval from the shareholders is required as the highest percentage ratio applicable for the Proposed Acquisitionpursuant to paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is only 15.63% as mentioned in Section 6 above.
The Proposed Acquisition is not conditional upon any other proposal.
9. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS
None of the Directors and/or major shareholders of MRCB or any persons connected to them have any interest, direct and/or indirect, in the Proposed Acquisition.
10.DIRECTORS’ STATEMENT
The Board, having considered all aspects of the Proposed Acquisition and after careful deliberation, is of the opinion that the Proposed Acquisition is in the best interest of MRCB.
11.ESTIMATED TIMEFRAME FOR COMPLETION
Barring unforeseen circumstances, the Proposed Acquisition isexpected to be completed by the third quarter of 2010.
12.DOCUMENTS AVAILABLE FOR INSPECTION
The SSA in respect of the Proposed Acquisition is available for inspection at the registered office of MRCB during office hours from Mondays to Fridays (except for public holidays) at Level 21, 1 Sentral, Jalan Travers, Kuala Lumpur Sentral, 50470 Kuala Lumpur for a period of 3 months from the date of this announcement.
This announcement is dated 30 June 2010.
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