MRCB: Degearing, revamp plans soon

KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) has alleviated market concerns that the company’s balance sheet is overstretched with three recently announced projects, saying it will come up with “degearing” and restructuring plans soon.
“We will take up financing, but at the same time we will degear ourselves, I cannot say much on our degearing plan because it’s speculative,” executive director Imran Salim told a media briefing here yesterday.
The three projects are the regeneration of Bukit Jalil National Sports Complex into Kuala Lumpur Sports City for RM1.63 billion; a joint venture on a 70:30 basis with Cyberview Sdn Bhd to develop 53.4 acres of land in Cyberjaya with its stake amounting to RM269.5 million; and RM3.1 billion worth of construction replenishment work from Kwasa Development Sdn Bhd.
Imran stressed that the company’s gearing is “not so bad” given that it is asset-backed.
“It’s because we have a highway, so our gearing looks big. Apart from that, all our gearing are assets-backed, that is the beauty of our company and any assets-backed gearing are sustainable, so it shouldn’t be an issue.
“Because of the concession, the highway carries half of my gearing, if I take that out, my gearing will be like any of my competitors’,” he said.
Analysts have said they are not entirely positive with MRCB’s landbanking ambitions and construction contracts being paid in kind as they will put pressure on the company’s cash flow.
Kenanga Research noted that MRCB’s already high net gearing of 1.12 times as at end-June will weaken to 2.27 times assuming full debt funding for these deals.
Thus, the research house opined that the probability of a cash call has increased while returns from these projects will take quite a while to materialise.
However, Imran said MRCB has sufficient cash flow to internally fund the first phase of the KL Sports City project worth RM499 million, spanning from January 2016 to June 2017, to prepare for the 2017 Sea Games.
For the second phase worth RM1.1 billion, he said while the company will take on some financing, it will only happen in the later part as construction works will start in January 2018 and be completed by December 2020.
“We’re not taking the RM1.6 billion upfront now. They are in stages, so our internal finances can hold it,” he reiterated.
While MRCB will be paid in kind through the transfer of three parcels of Bukit Jalil measuring 92.5 acres in total, Imran said this is in line with the company’s landbanking plans within the urban area to take advantage of the next cycle of the property market.
“Our key objective is growing our landbank and because we are a urbanised developer, we focus on buying urban land,” Imran said, noting that most of its key developments have entered the end of the cycle.
For the three parcels of land, he said the company hasn’t decided on the types of development to be embarked on as it could only get the land from the government after fufilling its obligations on KL Sports City.
“We can only start the actual development until we complete most of the obligations, that could be four to five years later,” he explained.
Nevertheless, Imran disclosed that the land fetches a value of 5% above the current market value.
Kenanga Research expects the land to have a potential gross development value of RM14.6 billion.