MRCB/Quill Capita

It is in "mature" negotiations to inject its KL Sentral flagship office – Platinum Sentral – into Quill Capita Trust Bhd in return for cash and shares. This, in turn, could lead to MRCB emerging as the single largest shareholder of Quill Capita.

At the same time, MRCB is also buying into the management company of Quill Capita called Quill Capita Management Sdn Bhd. Sources said MRCB would buy out one of the major owners of the latter.

Quill Capita Management has three shareholders -- Quill Resources Holding Sdn Bhd, a company within the Quill Group of Companies, CapitaLand RECM Pte Ltd, a unit of CapitaLand Financial, and Coast Capital Sdn Bhd, a Bumiputera party.

If the deal materialises, then it will be the first of its kind whereby an asset injection results in a new controlling shareholder of a real estate investment trust (REIT).

Currently (Jan 2014), CapitaLand via associate CapitaCommercial Trust Ltd has a 30% stake in Quill Capita. With the new shares issued to MRCB, CapitaCommercial’s stake will likely be diluted to be smaller than what MRCB will have in Quill Capita.

The injection of Platinum Sentral will also see Quill Capita’s net asset value increasing to approximately RM2bil.

The benefits of this deal include MRCB quickly having a REIT of its own. In contrast, if MRCB were to have opted to create its own REIT, that process would have taken a much longer time.

As a result of owning the REIT, MRCB will be entitled to the yield provided by the REIT plus future capital gains on its holdings. The REIT also offers MRCB the option of where to inject more of its mature property assets in the future. Currently (Jan 2014), Quill Capita offers a yield of approximately 7.07%.

Quill Capita has a market capitalisation of RM452mil. With this deal, its market cap should breach the RM1bil mark. Industry sources have pointed out that it was the larger REITs that would enjoy better valuations.

MRCB’s net gearing stood at 1.7 times, while total borrowings was at RM3.4bil as of September 2013. MRCB has long-term borrowings of RM1.62bil and short-term borrowings of RM716mil, and a senior and junior sukuk worth RM1.06bil. It has a debt-to-common equity ratio of 234.4%.

Reports have also indicated that MRCB was divesting its 30% stake in the concessionaire of the Duta-Ulu Kelang Expressway (Duke) to Ekovest Bhd for RM230mil in a cash deal.

Thus, should the sale of Platinum Sentral and Duke take place, it will bring in about RM750mil to RM1bil in cash, which will reduce the company’s debt level by 20% to 30%.

The plans to divest Platinum Sentral followed by Shell Tower and Ascott Residences would transfer about RM750mil worth of debts to the REIT, with realised gains of around RM380mil.

Quill Capita was listed on the Main Board of Bursa Malaysia on Jan 8, 2007. It acquires and invests in commercial properties primarily in Malaysia, namely, the Tesco building in Penang, and the various Quill buildings in the Klang Valley and Cyberjaya. The major tenants of the properties are mainly subsidiaries of multinational companies.