Sunday, June 28, 2015

Reevaluate your Evaluations - "Discounted" Over-the-Top Prices Hints at Well-Disguised Bailouts

The proof of land valuations is in the pudding, or rather in the actual transactions which took place.

Recently, many companies – particularly government-linked ones criticized for their overpriced land purchases, have defended their acquisitions by referring to higher property valuations.

Out of the blue, Majlis Amanah Rakyat (Mara) chairman Tan Sri Annuar Musa has now claimed that Mara purchased the Dudley International House property at a price that was lower than market valuations at the time of purchase in 2013, according to a report in The Star.

Annuar reportedly told RTM1 in an interview yesterday night that the property was valued at RM71 million at the time of purchase. Thus, Mara's move to pay RM63.6 million for the property was because it was lower than market valuations, he said.

Firstly, the issue or scandal has never been about the actual valuation of the property Mara purchased. It was about the Mara top executives conspiring with the vendor and other parties to defraud Mara, and secure AUD4.75 million of kickbacks for themselves.

Therefore, even if Mara did indeed acquire the property for less than market valuation then, the Mara executives acted strictly against the interest of the government entity. Hence, why is Mara chairman suddenly raising this issue? Is it a step towards exonerating or diminishing the crimes of those who cheated Mara?

However, more importantly, was the valuation really RM71 million as alleged? If it was really RM71 million, it begs the question as to why would the vendor be willing to sell for a significantly lower price and yet still have to pay kickbacks to the purchasers? Were the vendor-developers stupid or astoundingly kind hearted?

Similarly, when 1Malaysia Development Bhd (1MDB) acquired a 125ha piece of land in Pulau Indah for RM294.37 million or RM21.80 per square feet (psf), I had accused 1MDB of overpaying. The property was last valued by Tadmax in its 2011 Annual Report for RM9.93 per square foot.

Both Tadmax and the Government on behalf of 1MDB, denied the allegation, claiming that the market value of the property is actually much higher. Datuk Chua Tee Yong has pointed out that the land was worth between RM55 to RM66 psf based on surrounding property transactions. He implied that 1MDB bought the land at a bargain.

If only it were true. Firstly, if the land was indeed worth RM55 psf, why would Tadmax, which was in deep financial trouble be agreeable to sell the piece of property for ‘only’ RM21.80?

Secondly, if indeed it is worth as much as RM55, wouldn’t Tadmax directors be failing their fiduciary duties to their shareholders to ensure that the latter receives maximum returns and value from the approved transactions? Would not the Securities Commission have red-flagged the transaction as against the interest of minority shareholders?

Similarly, when Tabung Haji was accused of bailing out 1MDB by acquiring a 0.64ha piece of land in Tun Razak Exchange (TRX) for RM188.5, the former justified that it was acquired at a discounted price. The Chairman of Tabung Haji, Dato’ Seri Abdul Azeez Abdul Rahim even boasted on the 10 May 2015 that there are already 3 firms queueing up to buy the piece of land from Tabung Haji. The quick-flip transaction would have enabled Tabung Haji to make an easy profit of RM5 million within 2 weeks.

A quick RM5 million profit would have been nice, except it has been 7 weeks since the announcement. There has been no buyer confirmed, not even any payment of a 1% earnest deposit. Anyone would have known that Dato’ Seri Abdul Azeez was making an empty boast. If it been so easy to secure a buyer for the property, 1MDB would have sold it to them long before Tabung Haji got its chance. After all, 1MDB is in severe financial crisis and is in need of all the cash it can lay its hands on.

Therefore all these attempts to absolve the crimes of the GLC executives by claiming that the assets were acquired below market value are all hogwash. Just as the proof of the pudding is in the eating, the proof of market value is in the actual money transacted.

If no one is willing to pay a higher price for the Melbourne, Pulau Indah and TRX properties, then at the very best what was paid was fair valuation. At worse, as we fear, these over-the-top prices are merely well-disguised bailout attempts to save financially stricken companies like 1MDB and Tadmax, or as cover for illegal kickbacks for corrupt officials.

Tony Pua

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