KUALA LUMPUR (July 12): Hap Seng Consolidated Bhd is disposing of hotel operator Richmore Development Sdn Bhd to its largest shareholder Gek Poh (Holdings) Sdn Bhd for RM51 million cash.

Via the deal, the diversified group is to see RM212.5 million in liabilities deconsolidated from the group’s books as Gek Poh replaces it as the new guarantor for Richmore’s bank borrowings, said Hap Seng in a bourse filing.

The deal is considered a related party transaction as Gek Poh’s aggregate shareholding in Hap Seng is 62.64%, comprising a 54.63% direct stake and an 8.01% indirect stake held via its wholly-owned unit Hap Seng Insurance Services Sdn Bhd.

Gek Poh is 56% owned by Tan Sri Lau Cho Kun @ Lau Yu Chak, while the other 44% is held by Magic Principle Assets Ltd.

A share sale agreement was inked between the group’s indirect wholly-owned subsidiaries HS Hospitality Sdn Bhd, Hap Seng Land Development Sdn Bhd and Gek Poh for the disposal. HS Hospitality owns a 99.01% stake in Richmore, while Hap Seng Land Development owns the other 0.99%.

According to Hap Seng, Richmore is principally involved in operating a hotel and owns a 3,796-sq metre parcel of land in Kuala Lumpur valued at RM263 million as ascribed by an independent valuer in June.

Atop the land, a residential development called “Marriot Executive Apartments, Kuala Lumpur” is 25% completed, bearing a total development cost of RM559 million funded by bank borrowings.

Hap Seng said the RM51 million consideration was arrived at on a willing-buyer willing-seller basis taking into consideration Richmore’s RM263 million property, the company's unaudited net assets of RM45.7 million, ex-RM257.87 million in carrying value of the property.

The group added that the disposal is expected to give rise to a pro-forma net gain of RM4.9 million, derived based on the disposal consideration against Richmore’s unaudited net assets.

“The proposed disposal will enable Hap Seng to streamline and balance the group’s portfolio mix between property development and property investment, strengthen its financial position by deconsolidating Richmore’s borrowings of RM202 million as at June 30, 2023, and meet its working capital needs which include property development activities,” it said.

It is also worth noting that Hap Seng managing director Datuk Edward Lee Ming Foo and executive director Lee Wee Yong are also directors of both Richmore and Gek Poh. The pair have abstained from deliberations and voting at relevant board meetings.

Last year, Hap Seng disposed of its entire equity stakes in HS Credit (Birmingham) Ltd for £127.8 million and HS Credit (Manchester) Ltd for £152.98 million to Lei Shing Hong Capital Ltd, a Hong Kong-based company owned by Lau.

Shares in Hap Seng ended half a sen or 1.61% higher at RM3.16 on Wednesday (July 12), giving the group a market capitalisation of RM7.87 billion.