Uncertainty still ahead in PKFZ bond saga

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KUALA LUMPUR: While a potential fallout from the Port Klang Free Zone (PKFZ) bonds was averted in the nick of time two days ago, uncertainties still lie ahead with regard to subsequent tranches of repayments, including the next immediate tranche that is due on July 31.

Port Klang Authority (PKA) is due to make the final payment of RM222.584 million by the end of this month to Free Zone Capital Bhd, one of the four special-purpose vehicles (SPVs) that were established by PKFZ turnkey contractor Kuala Dimensi Sdn Bhd (KDSB) to raise funds from the market.

All four SPVs had raised private debt securities totalling an estimated RM3.69 billion.

Special Port Vehicle Bhd raised RM1.3 billion, secured against land acquisition and repayable by 2017, at 7.5% per annum; Transshipment Megahub Bhd raised RM1.4 billion, secured against development work repayable by 2012, at 7.5% pa; Valid Ventures Bhd raised RM545 million, secured against additional development works repayable by 2011, at 5% pa; and Free Zone Capital Bhd raised RM410 million secured against additional works and repayable by 2010 at 5% pa.

PKA had estimated total payments due to KDSB to be RM4.81 billion, over which the rights had been assigned to the SPVs. To date, it is believed that PKA has paid RM2.39 billion, of which RM250 million came from its own coffers.

Due to the lack of cash flow from the PKFZ project, PKA had had to obtain a soft loan totalling RM4.38 billion in 2007, from the federal government towards repaying the bondholders. It is believed that close to RM2 billion is yet to be drawn down, an exercise that will continue until 2017.

Including interest of 4% pa, PKA will repay the ministry of finance (MoF) about RM6.89 billion over a 20-year period, starting next year. It has been reported that PKA will not be able to meet its repayment obligations to MoF given its under-par projected cash flow.

On Wednesday, former transport minister Datuk Seri Ong Tee Keat called for all payments to be frozen pending the outcome of lawsuits between PKA and KDSB. Ong, who as minister then in 2008 ordered a position review of the troubled PKFZ project, cited the ongoing disputes, including the one involving the New Additional Development Works (NADW).

“I am also inclined to believe that to make further payments will seriously jeopardise the existing civil actions taken by PKA against the developers.

“The final payment of RM222.58 million due on July 31, 2010 under NADW, if and when paid, will cross the threshold of what KDSB is clearly and legally entitled to.

“It does not make sense to make the full and final payment when there is an existing dispute amounting to RM83 million for the fraudulent claims. PKA had already paid under NADW, RM300 million in 2008 and 2009.

“We should avoid the risk of monies paid but unable to be physically recovered subsequently when the courts rule in your favour,” said Ong in his blog. Asked to respond to Ong’s statement, PKA chairman Datuk Lee Hwa Beng declined to comment.

Deputy Transport Minister Datuk Abdul Rahim Bakri had on Tuesday reiterated the federal government’s “commitment” to honour all debt obligations in the PKFZ case. However, some quarters questioned if Abdul Rahim had been authorised to speak on behalf of the cabinet and wondered if the cabinet itself should come out with a clear statement on the matter.

This article appeared in The Edge Financial Daily, July 2, 2010.