Quoting sources, Reuters said Citigroup Inc was hired as the adviser for the deal, which would include the sale of the NFO’s debt, to two private equity firms believed to be Carlyle Group and Providence Equity Partners.
The parties involved, BToto, Carlyle, Citigroup and Providence, declined comment, according to the newswire, which pointed out that if the deal were successful, the buyers may have to inject about US$400 million in equity, a considerable sum.
But while the purported US$1 billion deal could raise cash for BToto’s immediate parent Berjaya Land Bhd (BLand) to meet some RM1.4 billion debt (including the RM711 million exchangeable bonds) due within a year, some analysts and fund managers were sceptical about its feasibility, principally because the Berjaya group would lose half its cash flow.
On the back of the news, BToto closed three sen lower at RM4.27 while BLand ended trading yesterday unchanged at RM1.08. Both counters did not see a significant number of shares done.
Market observers said the sale of a 49% stake in the NFO could impact BLand and its parent Berjaya Corp Bhd (BCorp) in terms of a significant dilution in cash flow contribution from the NFO going forward. BLand in particular would still need strong dividend cash flow from BToto to meet its remaining debt obligations.
It had been widely speculated that BToto would be privatised first before a 49% stake in the NFO is sold to other investors.
Tan owned a direct and indirect stake of 40.5% in BCorp as at August 2010. BCorp in turn owns 56.64% of BLand (Tan owns a direct stake of 4.5% in BLand), which in turn owns 43.5% of BToto. It is worth noting that Tan owns a direct 1.04% stake in BToto while BCorp also owns a 5.2% direct stake in BToto.
Based on the present shareholding structure, BLand stands to get about RM196 million in annual dividend cashflow from BToto’s NFO, based on its 43.5% stake in BToto, which raked in an estimated annual operating cash flow of RM450 million. But if BToto were to sell 49% of the NFO, BLand’s share of future dividend cash flow from the NFO would be reduced to less than RM100 million.
Note that BLand would still have about RM1.35 billion borrowings left, assuming it settles its current debt due of RM1.4 billion with proceeds from BToto for the sale of the NFO stake. To recap, if BToto does sell its 49% stake in the NFO for US$1 billion and distributes the entire proceeds to shareholders, BLand would stand to receive RM1.31 billion.
“The deal may solve BLand’s immediate problem, but what about the longer term impact on the Berjaya Group after selling off half its cash cow?” commented a market observer.
Previously, it was widely speculated that Tan and Berjaya Group would first privatise BToto (valued at RM5.77 billion at yesterday’s share price, compared with the valuation of the entire NFO at US$2 billion), before selling a 49% stake in the NFO to other investors.
“Such a move would prevent a significant dilution in cash flow to the group. However, the privatisation of BToto would require funding which could burden the promoter,” said a market observer.
Nevertheless, selling half its stake in the NFO may not be the only solution for BToto to raise cash for its parent BLand. The Edge Financial Daily has learned that Maybank Investment Bank Bhd may be roped in to explore other means of structuring a better deal for the group. - by Melody Song of theedgemalaysia.com
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