Friday, January 19, 2018

MRCB is into something really BIG?

Seldom I see exercise done in this manner. And seldom an organization can do it at this scale. After raising about RM400 million a year ago in three tranches of private placement - expanding its share base by 20%, it does a rights issue in less than a year.

Back in November / December last year, MRCB raised additional funds at 1 for 1 rights at 79 sen per share. My question is why?

Although felt like not much, MRCB had a major fund raising exercise over a period of 18 months - as mentioned above first a 20% private placement, then rights issue which raised RM2.26 billion, followed by sale of land to EPF for RM1.144 billion and probably another big one in the sale of EDL i.e. Eastern Dispersal Link for another RM1 billion or more. Confused?

I am. But this potentially signifies something really big may come on stream.

I am not one of those who think speculatively, but with a total add-ons of funds of potentially more than RM4 billion, it definitely does makes me turn around and look further.

Cash add-ons of RM3.9 billion (excluding EDL deal with the government)
To understand their exercises, perhaps let me list down one by one:

  1. private placements of 20% raising RM408 million - which includes the MD's additional subscription, Bank Rakyat, Tabung Haji.
  2. sale of 80% of the land which MRCB gotten for refurbishing the Bukit Jalil stadium to EPF. This amounts to RM1.144 billion. Yet to compete, but potentially will be done in near future.
  3. the biggest one which is rights issue raising RM2.257 billion at 1 for 1. Obviously the MD and EPF took up the shares.
  4. Sale of Setapak land for RM100 million to Tabung Haji.
  5. negotiation with government to settle the EDL project in which case the toll collection has been stopped since 1 Jan 2018. One has to note that this is one of the toll highway which is loss making, hence the sale could be a goo thing for MRCB.
What are other major projects which the company has managed to secure or in the process of finalising?

  1. MRT2 projects at Cyberjaya City valued at RM148 million
  2. Cyberjaya City project which it will invest RM229 million for a controlling stake. See the link with the MRT2 project.
  3. Big one - Kwasa Damansara which it will subscribe for probably the most premium land (commercial center) there for 70% stake - project called MX1 - costing RM737.88 million.
  4. project delivery partner for LRT3 with George Kent - the project is a RM9 billion project.
  5. partnership with Gamuda to bid for High Speed Rail project - which I think the partnership has a fairly good chance of winning considering that Gamuda has experience in the MRT1 and MRT2 while as mentioned MRCB is working on the LRT3 with another partner.

Although it is still a big question, unless with the reason of improving the gearing of MRCB, I like the fact that the above exercises focuses on what the group clearly wants to own and what it wants to dispose. Of course, only a few companies can do the way they want it to. For example, not many would be able to have the chance to negotiate and dispose the Bukit Jalil land to EPF and have a fairly good deal out of it.

The group in the last 18 months exercise has managed to focus on three things.

  1. Get the large scale projects like PDP for HSR, LRT3, MRT3, DASH Highway;
  2. push for development into larger mixed development like Kwasa and Cyberjaya;
  3. sale of less strategic land while still be able to keep the construction work. The sale of land at Bukit Jalil and Setapak does not mean they are out of the projects but yet they are construction partner for these projects. I think this is sweet. 
In looking at the past, of course MRCB is not very attractive. Its margin was low and gearing was quite high - that gearing problem is almost being solved. Still, because of that I am not able to figure out how good is the group able to bring financial benefits to its shareholders.

But I like the exercises so far.


AdCool said...

Dont forget they are bidding for TOD project at Bandar Malaysia too and am building Penang Sentral with Kwasa Sentral and Petaling Jaya Sentral in the pipeline. Just because Bandar Malaysia was delayed, hence the bidding for that TOD project at BM.

No doubt they are preparing the fund for something big.

Anonymous said...

After MRCB settled EDL with government, they will potentially save RM81 mil of finance cost, which add to the bottomline.