Change of fortune for Magna Prima

by **Cals** Mon 11 May 2015, 02:11

Change of fortune for Magna Prima

Saturday, 9 May 2015
By: TEE LIN SAY

PROPERTY developer Magna Prima Bhd will be seeing a change of fortune on the back of sales proceeds from its Australian property development project The Istana now that the handover process is almost completed.
There will be a significant lowering of its borrowings when the company announces its results for its first quarter to March 31, 2015.
The settlement of sales proceeds is likely to see the group’s gearing level for its financial year ending Dec 31, 2015 reduce from 3.8 times currently to 0.6 times.
In Australia, recognition of profits takes place only after properties are built and sold.
The Istana, Melbourne, was completed in 2014 and the settlement of account with purchasers of the apartments, both local and foreign, commenced in February this year. The gross development value (GDV) of The Istana is roughly RM615mil, and to date, the company has collected some 80% of the proceeds, says Magna Prima group managing director Datuk Rahadian Mahmud Mohammad Khalil.
As at Dec 31, 2014, the group’s property division’s coffers had on record nearly RM200mil of unbilled sales in Malaysia and an additional RM404mil in Australia.
For that same period, Magna Prima has long-term borrowings of RM91.7mil and short-term borrowings of RM451.62mil. The bulk of the short-term borrowings is related to the Australian project.
“You will see much lower borrowings in our next reporting results. Now that we have repaid our commitments for the Australian project, we have short-term borrowings of only RM75mil,” Rahadian says. Out of the RM75mil, RM40mil is for the redeemable convertible preference shares (RCPS) issued to Lembaga Tabung Angkatan Tentera. Rahadian says cash for the repayment of this RCPS has already been set aside.
“We are not allowed to repay the RCPS until six months from its issuance. Come June 23, we will pay off the RM40mil, and Magna Prima will be left only with short-term borrowings of RM35mil,” he says.
The Istana is a 25-storey condominium with 320 units.It is located in A’Beckett Street in the heart of Melbourne’s Central Business District and within a short walk to Melbourne’s Queen Victoria Market, the University of Melbourne and the Flagstaff train station.
Niche developer
With its stronger financial position from the proceeds of its Australian project, the company’s strategy moving forward will be to return to its core values of becoming a niche developer, where it develops smaller projects but with larger profitability.
It will still focus on the Klang Valley where it will look to purchase and develop small pieces of land which are located in high density areas.
Magna Prima’s current signature projects are The Istana, The Boulevard Business Park in Jalan Kuching, and Desa Mentari near Bandar Sunway in Petaling Jaya.
Rahadian says the company is already in the midst of selling off three pieces of its existing prime land, namely its Lai Meng school land, 20 acres in Shah Alam, and seven acres in Petaling Jaya.
“We are looking to divest our high value land bank as these assets have appreciated tremendously. We want to consolidate the income to fuel our strategy moving forward.”
“We are looking to redeploy part of these proceeds to acquire land with a mid-range GDV that is more comfortable for us to undertake. That is part of our risk management strategy for the size of our company at the current moment,” he says.
Rahadian adds although Magna Prima is capable of undertaking big projects, it currently wants to take a more conservative approach for the next few quarters.
“While still maintaining some of our planned developments for this year, we may also embark on new ventures that will bring a more sustained and predictable income,” says Rahadian.
Magna Prima currently has some 28 acres of undeveloped land, mostly in the Klang Valley.
Earlier on, Magna Prima had an ambitious plan to build a 60-storey twin towers on the Lai Meng land for a combined gross development value of RM1.8bil. One of the towers would comprise a mixture of serviced apartments, a hotel and offices, while the other is expected to be a Grade A office building with Green Building Index features.
Hot topic
Magna Prima Bhd’s Lai Meng school property located along Jalan Ampang, has been a hot topic last year, mainly because Retirement Fund Inc (KWAP) was believed to be eyeing that piece of land.
The deal came about as Magna Prima was looking to divest the 1.6ha property located close to the iconic Petronas Twin Towers. The land is located next to Hotel Maya and less than 1km walk to KL City Centre.
Sources say KWAP is bidding for the land at the range of about RM3,300 per sq ft, which could see the government-linked investment fund forking out at least RM376.6mil if it secures the bid.
According to valuers, the land is currently worth RM350mil, which is a significant appreciation from the price it paid when it acquired the land from Lai Meng Girls’ School Association (LMGSA) four years ago.
Magna Prima bought the land in March 2010 for RM148.2mil cash (or around RM1,350 per sq ft).
The deal also included the transfer of 5.5 acres in Bukit Jalil to LMGSA as well as construction of a new Lai Meng campus, with the costs borne wholly by Magna Prima.
The Bukit Jalil land cost Magna Prima around RM10mil, while construction of the new building is estimated to have cost RM20mil to RM30mil.
However, the project is said to be too big for the low-profile property developer to handle as large funding is required.
For its financial year ended Dec 31, 2014, Magna Prima was in the red with net losses of RM13.86mil from a previous net profit of RM17.92mil. This was on the back of a 4.89% increase in revenue to RM142.55mil.
The losses were mainly due to its construction division which recorded full-year losses of RM39mil compared with a loss of RM3.3mil in the corresponding period.
The loss before tax was mainly due to additional construction costs being provided arising from the legal and arbitration dispute. It had cash balances of RM46.01mil.
The largest shareholder of Magna Prima is Fantastic Realty Sdn Bhd with a 20.6% stake, followed by Muafakat Kekal Sdn Bhd with a 9.91% stake.
Magna Prima, an investment holding company and through its subsidiaries, provides a diverse range of property development, building construction, trading and management services.