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Will sale of property revive MP Corp?
by Cals Mon 11 Nov 2013, 14:26
| Will sale of property revive MP Corp? |
| Business & Markets 2013 |
| Written by Wei Lynn Tang of theedgemalaysia.com |
| Monday, 11 November 2013 10:23 |
The commercial block was valued at RM320 million as at June 30 by JB Jurunilai Bersekutu (KL) Sdn Bhd, an independent valuer. Should MP Corp be able to find a buyer at the price of RM320 million cash, the financially stressed company would instantly be on a net cash position.
In March, the company had a declaration of default in the repayment of principal sums and interest in its revolving credit (RC) and bank overdraft (OD) facilities amounting to RM25.7 million and RM61.4 million respectively. It also owes its creditor Amanah Raya Development Sdn Bhd RM119.4 million (including interest at a rate of 7.2% per annum) as at end of its reporting period.
Sale proceeds of over RM300 million would be more than enough to settle the company’s debts of about RM206.5 million.
However, the reality may be different for MP Corp. Property valuers contacted did not value the commercial entity at such a high price.
According to MP Corp’s website, Wisma MPL, a freehold office and shopping complex, has a built-up of 711,444 sq ft.
“Market value is derived based on net lettable area. The gross floor area (GFA) of 711,444 sq ft looks rather large compared with the net-lettable area of 266,283 sq ft. As a rule of thumb, the net lettable area is around 70% of the GFA”, said James Tan, a partner in Raine and Horne.
He estimated the property to be worth RM300 million to RM310 million at most.
An even more conservative value to the property was quoted by a valuer — at slightly more than RM200 million.
“If the property were to be refurbished, however, [could] fetch RM1,000 to RM1,200 per sq ft for the office lots, and RM1,200 to RM1,500 per sq ft for the retail portion”, Tan said. It will then be able to justify the fair value of the property at RM320 million (RM1,200 per sq ft on a net lettable area of 266,283 sq ft).
It is worth noting that MP Corp wholly owns the 19 level office tower and three levels of car park, but it only partially owns 75,372 sq ft of the building’s retail podium at level 4, with the remaining 66,045 sq ft owned by private individuals.
Tan said complications would arise if the company wants to tear down or refurbish the building to redevelop it as it may not be agreed to by the private individual owners.
Taking this into account, prospective buyers may demand a lower price, particularly if refurbishment is needed. Furthermore, the commercial block does not offer good rental yields based on an investment of RM320 million.
For its financial year ended June 30, 2013 (FY13), the group’s revenue stood at RM14.4 million, of which 89% or RM12.8 million was derived from rental income from Wisma MPL and property management services.
A back of envelope calculation, based on rental income of RM12.8 million minus expenses of RM6.6 million, MP Corp’s net rental income is estimated to be RM6.2 million, this translates into a net yield of barely 2% — a return that is much lower than the fixed deposit rates in the banks. Will anyone pay RM320 million for the commercial block?
Wisma MPL is the main income generating asset, but it isn’t the company’s only asset. MP Corp owns a parcel of land in southern Johor, near Iskandar region.
However, in the audited annual accounts, its external auditors BDO pointed out that its creditor, AmanahRaya Development Sdn Bhd, to which the company owes RM119.39 million, filed a writ of summons for an injunction against the company, prohibiting and preventing it from selling certain parcels of land in Johor or entering into any transaction resulting in the disposal or transfer of ownership of certain parcels of land in Johor.
Thereafter, on Oct 22, the creditor had served a statutory notice pursuant to section 218(1)(e) of the Companies Act, 1965 against the group. However, the creditor withdrew the statutory notice on Oct 30.
Also, as at June 30, MP Corp’s current liabilities exceeded its current assets by RM224.01 million.
“These conditions indicate the existence of material uncertainties, which may cast significant doubt about the ability of the group and of the company to continue as going concerns”, BDO stated in the report.
MP Corp currently is solely dependent on the rental income derived from Wisma MPL and by selling the property it would have lost its recurring income source, although it is able to make a profit even after paying off its debts. Is this a viable way to revive the company?
This article first appeared in The Edge Financial Daily, on November 11, 2013.
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