RM1.3b takeover of EDL a boon for MRCB

This article first appeared in The Edge Financial Daily, on November 5, 2018.
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KUALA LUMPUR: The government’s announcement that it will take over the Eastern Dispersal Link (EDL) expressway from Malaysian Resources Corp Bhd (MRCB) for RM1.3 billion in Budget 2019 could prove to be a boon for the diversified group.

“The acquisition price is neutral at NPV (net present value) but it (the acquisition of EDL by the government) is akin to the final piece of a jigsaw puzzle falling snugly into place, MRCB’s debt could be substantially slashed now,” said a corporate executive familiar with the group.

An analyst estimates MRCB’s gearing to fall to 25% in 2019 (assuming the government settles the RM1.3 billion next year), from the existing level of almost 70%.

“MRCB’s balance sheet has long been a drag on its valuations … and this (weak balance sheet) is largely due to the EDL. Now (after the sale of EDL) there is even talk that the company may hive off other assets, some buildings, which would put it in a net cash position,” he said.

In its latest annual report, MRCB stated all its non-core assets and businesses had been disposed of, apart from the largest, the EDL in Johor, which accounted for 31.3% of its debts at the end of 2017.

For its six months ended June 2018, MRCB chalked up a net profit of RM54.97 million from RM832.84 million in revenue.

As at June 30, under current liabilities on the balance sheet, MRCB had short-term debts of RM1.56 billion plus senior and junior sukuk of RM1.02 billion. Its long-term debts amounted to RM1.31 billion, while its long-term liabilities were pegged at RM340.92 million. On the other side of the balance sheet, MRCB had deposits, cash and bank balances of RM455.17 million.

During the six months under review, MRCB paid as much as RM21.03 million in finance costs, which were about 38% of its net profit.

To recap, MRCB Lingkaran Selatan Sdn Bhd — a wholly-owned unit of MRCB — is the concessionaire for the 8.1km elevated highway in Johor Baru, which links the Pandan Interchange at the North-South Highway, to the new Customs, Immigration and Quarantine Complex in Bukit Chagar.

Talk of the government to acquire EDL had been ongoing since August 2012, a little more than five years after the expressway concession was awarded in June 2007.

MRCB had been looking to hive off its highway concession for some time and in October 2016 went as far as announcing that two parties had expressed interest, North-South Highway operator, PLUS Malaysia Bhd, and a client of ZJ Advisory Sdn Bhd.

However, in late December 2017, the government terminated the EDL concession agreement and agreed to take over the highway, resulting in toll collections at the EDL being abolished since January 2018.

MRCB’s share price has dropped 32% year to date, closing at 76 sen last Friday, with a market capitalisation of RM3.34 billion.