Questions about Magna Prima blockbuster sale

There should be more scrutiny when a developer would rather sell prime land than build on it

IT’S a special kind of property developer that wants to sell its entire land bank, including real estate that it has called its crown jewel.

That’s like Apple saying the designs and ideas for its next new products are up for grabs. Or a movie studio unloading its line-up of production deals and film rights. Or a contractor seeking somebody to buy over its order book.

How often do such things happen, other than when a company is planning to get out of a business?

That isn’t the case with Magna Prima Bhd, and yet it’s talking about disposing of three pieces of “prime land” by the year-end. The developer-cum-builder says it will use the proceeds to buy smaller plots of land and it will introduce a dividend policy that gives shareholders half of a project’s profits.

The 30 acres of land in Shah Alam, Petaling Jaya and Kuala Lumpur was all the development land owned by the company as at December 2014.

The most prized is a 2.62-acre plot in Jalan Ampang, once occupied by a primary school and a kindergarten. The Petronas Twin Towers are about 400 metres away and Magna Prima had proposed to build what it called the Jalan Ampang Iconic Towers, with a gross development value (GDV) of RM1.8bil.

The other for-sale assets are seven acres of land in Section 5 in Petaling Jaya, and 20 acres in Shah Alam’s Section 15, where the company originally wanted to develop a “fully integrated mixed commercial hub” worth RM1.4bil.

StarBiz reported on Thursday that Magna Prima hopes to collect RM500mil cash by selling the three pieces of land.

According to the article, valuers think the Jalan Ampang land can fetch RM350mil. A property agent will be appointed for the sale of this piece of land that the company bought for RM148mil in a 2009 deal that included it buying land in Bukit Jalil, where it built a new school.

Magna Prima group managing director Datuk Rahadian Mahmud Mohammad Khalil was quoted as saying the Shah Alam and PJ land had also gone up in value since their purchase some five years ago.

He added that the company would now focus on developing “smaller niche projects with a GDV of RM200mil to RM300mil. “We should complete two or three projects every year,” StarBiz quoted him as saying.

Presumably, Magna Prima will need to get shareholder approval if it goes ahead with the disposals. When a property developer sells so much of its development land, tough questions should be asked. Here are a few to consider raising at the EGM:

• Doesn’t the management believe that a bird in the hand is worth two in the bush?

Based on information from the company, the combined GDV of the land is RM3.5bil. That’s equivalent to almost 12 projects worth RM300mil each. Why is the management sure that it can earn more from future projects than from the existing land? How confident is it about securing suitable land in hot areas, even with RM500mil to spend?

• What exactly is Magna Prima’s business model?

Here’s what its website say: “Focused in the Klang Valley, Magna Prima Bhd is a niche developer of integrated lifestyle themed projects that attract robust take-up rates. The group focuses on purchasing and developing pocket-sized land banks that are located in high-density areas, with easy accessibility and have a significant gross development value.”

What’s pocket-sized anyway? Maybe it can be argued that the 20 acres in Shah Alam doesn’t fit that description but certainly the KL and PJ land is each no bigger than many of Magna Prima’s previous project sites. And KL and PJ are certainly high-density areas.

The circular to shareholders about the Shah Alam land acquisition also talked about the company’s specialisation in developing pocket-sized land, and it said the purchase would add to its track record of “successfully developing niche and strategically located commercial and mixed development projects”. So size was clearly not an issue then.

• When did development potential switch to sale potential?

Released on April 29 this year, the Magna Prima annual report 2014 had no indication that it would rather sell than develop the KL and Shah Alam land. Chairman Tan Sri Adzmi Abdul Wahab wrote that the company was examining its development plans for the KL land “with a fine-tooth comb” to ensure that the project “unlocks the maximum possible value in terms of return on investment for our shareholders”.

On the proposed project in Shah Alam, he said: “Development plans for this parcel of land are in place and subject to further refinement.”

So what has changed since the annual report was published?

• When will the company disclose all about the dividend policy?

Ideally it should coincide with announcement of the proposed disposals because they are linked. And how will shareholders know how much profits each project earns?

• How much will be made known about the sale process?

The stock exchange rules specify what needs to be disclosed about certain transactions, but will Magna Prima go beyond that so as to demonstrate transparency in selling its most valued assets?

Executive editor Errol Oh sometimes wonder about the usefulness of chairman’s statements in annual reports. - By The Star