LRT3 works to resume in 2H19

This article first appeared in The Edge Financial Daily, on February 15, 2019.
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KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) said works on the light rail transit 3 (LRT3) will resume in the second half of 2019 (2H19), after progress has stalled for about a year as the government looked for ways to reduce the cost of the project.

MRCB chief financial officer Ann Wan Tee said the group has signed the fixed-price contract with Prasarana Malaysia Bhd and is now going through some redesigning of the project before resuming works.

“We started a bit of the work before and we have completed about 10% before works stalled. There have been some redesigns so we expect to start probably in 2H19,” he told a press conference following the group’s extraordinary general meeting (EGM) yesterday.

He said the group had to defer the expected contribution from MRCB George Kent Sdn Bhd — a joint-venture (JV) company between MRCB and George Kent which is the project’s turnkey contractor — last year, adding that the revenue and profit contributions from LRT3 will commence in 2H19.

Asked about reports of work package contractors not being paid, Ann said they were paid sometime before Chinese New Year, but clarified that the payment was Prasarana’s obligation and not the group’s.

“The contractors got paid just before Chinese New Year. I think they received 50% of the payments but you will have to refer to Prasarana. Effectively, it is not our obligation. The payments come directly from Prasarana to the contractors,” he said.

The Edge previously reported that Prasarana had not paid for work that had been completed up to Sept 30, 2018, which amounted to RM800 million, pushing several smaller subcontractors to the brink of bankruptcy, according to sources.

Works for the LRT3 project have stalled for about a year, after the minister of finance found that the actual cost of the project was RM31.45 billion, rather than the RM9 billion projected by the previous government.

In October last year, MRCB George Kent said it was notified by the government that the LRT3 project would continue at a lower cost of RM16.6 billion — almost half the earlier cost.

A month later, the JV company secured an RM11.86 billion contract for LRT3 from Bandar Utama in Petaling Jaya to Johan Setia in Klang.

At the group’s EGM yesterday, MRCB received the approval of 99.9978% of its shareholders for the proposed ratification of the mutual termination of its concession for the design, construction, management, operation and maintenance of the Eastern Dispersal Link (EDL) expressway.

MRCB chief corporate officer Amarjit Chhina said the termination of the concession marks the end of the group’s corporate transformation programme, which was aimed at strengthening its balance sheet and reducing its gearing level.

The group has used the RM1.33 billion settlement sum it received in November last year for debt repayment.

“There were two key transactions that we set out to conclude last year. One was the mutual termination agreement for the EDL and the other was the subscription by the EPF (Employees Provident Fund) for 80% of Bukit Jalil Sentral.

“We have achieved both transactions and as at the end of last year, our net gearing has dropped to the mid-20s. We started off this corporate transformation and de-gearing programme when our net gearing was 173%,” said Amarjit.

Besides significantly lowering its gearing, MRCB has also increased its land bank and grown its construction order book to RM23 billion — which Amarjit said is probably the largest in the industry currently.

Meanwhile, its property development division has RM32 billion worth of developments in the pipeline, which provide earnings visibility over the next 20 years.

“In terms of improving the visibility of our revenues and earnings, this is probably the best position that MRCB has been in in a number of years, coupled with a very strong balance sheet that enables us to fund our growth,” Amarjit said.