Thursday, September 8, 2011

RAM: Mixed impact from Ambang Sehati purchase of BDRB assets

KUALA LUMPUR: RAM Rating Services Bhd views the corporate exercise involving Ambang Sehati Sdn Bhd's acquisition of BANDAR RAYA DEVELOPMENTS BHD []'s (BRDB) investment PROPERTIES [] to have a mixed impact on the group's credit standing.

'While the potential divestment may be an immediate positive to BRDB's financial profile, it would exert a negative effect on its business risk profile over the longer term,' it said on Thursday, Sept 8.

To recap, Ambang Sehati ' a major shareholder in BDRB -- had on Sept 5 proposed to acquire four of BRDB's investment properties -- CapSquare Retail Centre, Permas Jusco Mall, Bangsar Shopping Centre and Menara BRDB.

These properties had a total carrying value of RM942 million as at end-December 2010. The purchase consideration, which has yet to be determined, is expected to be satisfied by cash upon completion of the proposed acquisition. BRDB is expected to inform Ambang Sehati of its decision by Sept 19.

RAM Ratings pointed out that should the proposed acquisition be accepted, BRDB would be divesting all of its investment properties, which have been providing a stable source of recurring rental income.

The ratings agency said the investment properties division, which accounted for 21% of BRDB's operating profit in 1H FY December 2011, had been expected to contribute 20% to 30% of the group's projected operating profits over the next three years.

While plans have yet to be firmed up on the expected utilisation of the sale proceeds; these could entail reducing some of BRDB's borrowings, funding working capital and the remainder to be used to pay a special dividend to its shareholders, it said.

'We note that the potential divestment could lighten BRDB's debt load (which stood at RM769 million as at end-June 2011), with a corresponding improvement in its gearing and debt-coverage ratios in the immediate term.

'However, these positives would be offset by the payment of special dividends and the loss of stable rental income as well as cashflow. Furthermore, the divestment will steer BRDB towards becoming a pure property developer as it will cease to benefit from its more stable income from property investment. This, in our opinion, heightens the group's business risk,' it said.


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