Prime asset: BRDB’s assets include CapSquare Retail Centre in Kuala Lumpur. THE air in corporate Malaysia is brick-thick with suspicion. Nary a major deal is trumpeted without it falling under the microscope. For investors and minority shareholders, that's clap-worthy; informed decisions are best made when there are multiple interpretations. For company directors and major shareholders, it keeps them on their toes. Who would fault that!
The landmark share swap exercise involving major shareholders of national carrier Malaysia Airline and till today continues to be riddled by nagging doubts that one party got the better of the deal. Then, there's purchase of a 30% block in property company which unleashed a string of governance-related allegations, even going as far as threatening a potential reputational fallout of the chief securities regulator.
Against this backdrop, revealed an offer by its major shareholder of 18.88% to buy over four key investment assets. From the onset, the deal appeared benign, except that it's a related-party transaction (RPTs) which set off the siren of distrust.
RPTs are of course legitimate. However, as they involve interested parties, questions pop up on whether the corporate insiders are focused on the interests of shareholders or not. The biggest fear is an insider using a company's asset for personal benefit? Does it work in favour of the company or those running it? Does it equally benefit the buyer and the seller? In fact, strict governance hawks even suggest that RPTs be viewed as guilty until proven innocent. Rightly or wrongly.
BRDB's chief in an interview with StarBizWeek himself admits: “I knew we were going to get walloped.”
On Sept 5, BRDB annnounced that Ambang Sehati had made an offer to acquire these assets namely which owns Bangsar Shopping Centre, Menara BRDB, CapSquare Retail Centre and Permas Jusco Mall. Ambang Sehati the private vehicle of BRDB's and his uncle and family gave the BRDB board two weeks to decide which lent a whiff of desperation to the deal. Details on the valuation of these assets, at that point, were glaringly absent.
Right on time, two weeks later, BRDB said its board had agreed to the proposed disposal of these assets for RM914mil (including net liabilities of RM484mil). To sweeten the deal, it plans to distribute part proceeds as cash dividend to shareholders.
The logic behind the deal is to enable BRDB to utilise capital more efficiently while allowing it to unlock the value of these assets. As far as rationales go, why not? As for Moiz, understandably altruism can't be the deal's sole dictator. He must eventually, as any salt-of-the-earth businessman would do, want to create further value in these assets. That being the case, couldn't Moiz, as chairman, still be able to do that if the assets were retained under BRDB? Or would the motivation to work an asset be far greater if it were wholly-owned? And what of the fact that the company has spent a substantial amount of money building and refurbishing these assets?
The chief of Rita Benoy Bushon questions if BRDB may miss the opportunity to enjoy the fruits of future price appreciation and rising rental yields if these assets are divested. No doubt, Jagan and team as well as the independent advisers will have to iron out these creases of concerns in the weeks ahead.
There is also another source of unease. But this one is easier to explain away.
For the deal to forge ahead, it would need the nod of a simple majority of disinterested shareholders. According to the company's latest annual report, of the 30 major shareholders based on the record of depositors as at April 25, 2011, Credit Suisse is in the top spot with a 23.57% interest. However, under the list of substantial shareholders (5% and above), there is no mention of Credit Suisse which can be construed that none of the individual accounts in this “pooled” nominee account own more than 5% each.
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