This is the second part of our series on the MRCB-Nusa Gapurna takeover, which began yesterday.
Question and answer session
Q. You say Ernst & Young valued Gelanggang Harapan at RM310 million to RM350 million, yet you sold it for RM250 million to MRCB?
We had a lot of arguments, this (Gelanggang Harapan sale) alone was a one month argument (between him and MRCB), we gave in because we are looking at a long term perspective.
Once the whole merger is done we will all benefit, so we didn’t want to argue on the RM100 million. Also the valuation was done on a DCF (discounted cash flow) valuation method, which is the most prudent method.
But yes, I would like to put it on record that we gave a RM100 million discount— also Ernst & Young is MRCB’s consultant, not ours.
Q. Does Gelanggang Harapan have any contracts outside of the Gapurna group?
We build all the Giant Hypermarkets and for a few other parties such as Shell and Petronas where we build infrastructure for them.
Q. Why 16.8 per cent?
EPF still wants majority, and wants about 40 per cent. (EPF will end up with about 38.4 per cent)
Q. Isn’t it risky for you only having 16.8 per cent?
I don’t call it a risk, I call it a challenge…Whatever you do EPF will always be the largest shareholder, they have a huge block, so we can only be the second largest shareholder… but we are doing business in good faith, there will be challenges but we are doing the deal in good faith.
Anyway in a lot of the companies, the smaller shareholder drives the business, it’s not exactly something new…If we keep performing there is no reason for anyone to get rid of us.
Q. Why don’t you take more shares, less cash to gain more than 20% to equity account MRCB’s earnings?
Gapurna is purely going to be an investment holding company. Our sole focus will be MRCB, we are not going to bother about consolidation of accounts or equity holdings.
But 16 (per cent) is actually a good start for us, but of course we have the warrants.
Q. There is a perception that you are merely using MRCB’s balance sheet to develop your land. Can you comment?
Well, MRCB is a big company, of course we will use their balance sheet, and we will not deny that. But let’s be fair to Nusa Gapurna as well…The land (being injected into MRCB) is unencumbered.
The business model of Gapurna is that we manage and calculate our risk very well.
Our business model is very different from others….many players build first then look for buyers. We don’t sell to the mass market, we custom make buildings, we either have an anchor tenant or have our buildings fully taken up (before we build), so we eliminate market risks…we can always secure funding.
Now…MRCB’s gearing ratio is 2.3 times, and they cannot gear up. But when we inject unencumbered land into MRCB, its gearing will drop to 1.7 times.
Q. But even at 1.7 times MRCB’s gearing is still high….
That’s because of some of their assets (presumably the Eastern Dispersal Link, a toll road in Johor).
Anyway, we are bringing in a large order book, we are issuing free warrants, we are improving their balance sheet as part of the merger….we are also paying a premium at RM1.55 for the shares.
We are telling the market we want to grow MRCB and merge the companies to be one of the largest developers in the country.
Q. Out of curiosity, why not a direct IPO for Nusa Gapurna?
Then we will be only listing our assets, not enhancing our asset base….what we are doing with MRCB is getting a smaller piece in a larger pie.
You have to go big, go for the quantum leap, you may have a smaller piece of the pie but you have a very good pie to talk about.
Q. But MRCB has always been professionally managed…
That is a question for EPF actually.
But this is an important transformation; the EPF has been looking for a deal like this for some time now, where the business is entrepreneur driven. We (MRCB and Gapurna) are both similar, urban developers, mostly focused on commercial development. There will also be entrepreneurial injection into MRCB to make the company faster, leaner and more efficient.
Our team is also quite young, so there is long-term management planning.
Q. Many are asking about your political linkage.
Why didn’t you ask me how hard I work? Nobody believes that I work hard…nobody says you are successful yourself. But it’s like that I guess. Remember our deal with MRCB will only be concluded in July.
And it’s not like I have some highway concession or some power generation project or some other lucrative contract… I just bought some good parcels of land.
Q. What is your background?
I have been in the property market for 25 years, but I have been low profile, doing my small and medium sized deals… it took me 25 years now to come into a deal like this.
Q. How did you come about the choice parcels of land?
I have been buying and selling land since 1985. I bought a lot of small parcels of land.
Q. Was the land given by the Government?
I paid money for it; even if it’s Government land you still have to pay for it…you cannot get title without paying for it.
Mohamed Salim Fateh Din will be 56 years old this year. He is not one of those businessmen who was born with a silver spoon in his mouth. The youngest of six siblings, his father was a police inspector and his mother a home maker.
He was born and brought up in then unfashionable Brickfields—which coincidentally is where Malaysian Resources Corp Bhd’s flagship KL Sentral is located.That development has already changed the face of Brickfields and helped to make it, well, more fashionable.
Salim started his working life with Malaysia Airlines as a steward, but left in 1985 at the age of 28, after he got an offer to run petrol stations for Esso. Here he learned the ropes of business, selling industrial petrol and diesel to factories, and scouting around for land to build petrol kiosks.
In 1989 he did his first land deal, when he acquired a parcel of land— in Jalan Maarof, Bangsar— from a Punjabi gentleman, and built a petrol station which still stands to this day.
“It was a small but lucrative business that others did not want to do, (from there) I made some money, and started out…I worked very, very hard,” Salim said.
From his days with the airlines Salim noticed that petrol kiosks abroad sold much more than just petrol, and replicated this here, advising oil companies on the set up of their stations.
Considering his deal with Malaysian Resources Corp Bhd (MRCB) is valued at RM729 million he seems to have done well for himself.
Other than being a developer, Salim is also the president of the Malaysia-Pakistan Business Council, independent and non-executive chairman of British American Tobacco (M) Bhd and the chairman of Giant Hypermarkets. He was appointed chairman of BAT in April last year.
Considering he is a relatively new entrant into the higher echelons of corporate Malaysia, his moves will certainly be closely watched.