Private entities to the fore in SUKE and DASH projects

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This article first appeared in Corporate, The Edge Malaysia Weekly, on August 29 - September 4, 2016.

 

EARLY this month, Permodalan Nasional Bhd’s (PNB) unit Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) awarded 17 contracts worth almost RM8 billion for the Sungai Besi–Ulu Kelang Elevated Expressway (SUKE) and Damansara–Shah Alam Elevated Expressway (DASH).

Twenty-two companies made the list, of which only three are subsidiaries of listed companies on Bursa Malaysia. China Harbour Engineering Co Ltd (CHEC), a subsidiary of China Communications Construction Co Ltd, also won two contracts, partnering local companies.

Most of the companies are private entities, which makes it hard to assess their technical capabilities and financial standing. Nevertheless, based on information that is publicly available, most of the companies have had experience as main contractors and subcontractors in infrastructure development.

However, the question arises as to whether these companies have the technical capabilities and strong enough financial standing to complete the projects. According to a construction expert, building an elevated highway is not as easy as a brownfield project such as road widening.

In building the elevated portion of a highway, there are more issues to manage, including (more complex) traffic management and the use of heavy lifters and probably launchers. Depending on the design and geographical formation, the project’s technical aspects could get difficult, says the expert who declines to be named.

However, this does not mean these small and relatively unknown private companies do not have the technical capabilities to build the highways.

Some of the companies, such as Cergas Murni Sdn Bhd, Hasrat Sedaya Sdn Bhd and Syarikat Muhibah Perniagaan dan Pembinaan Sdn Bhd (SMPP), seem to have the required skills, as they have undertaken jobs with similar technical complexities.

Nevertheless others that won the contracts only have experience in  “simpler” road construction, earthworks and other infrastructure construction associated with property developments, such as drainage and water treatment plants.

So, how did these companies win jobs to construct an elevated highways? Did they put in the most cost-competitive bids?

A source tells The Edge that one of the companies that won a contract does not have the required machinery to build an elevated highway. This caused the company to put in a higher bid, so it could buy or rent the machinery.

However, the source adds that the company had undertaken various construction projects in the past. Thus, PNB is giving it the benefit of the doubt, with the aim of encouraging a bumiputera construction company to upskill itself, he adds.

 

Highlights of the companies

Cergas Murni, a Class A bumiputera contractor, is 50%-owned by Datin Paduka Khatijah Sulieman, who is also the president of the Selangor Cheshire Home. It won the CB1 package of the SUKE project, worth RM550 million.

Cergas Murni has a notable presence on the east coast, where it was involved in the construction of the East Coast Highway Phase 2 through three contracts worth a combined RM512 million, and the construction of Jambatan Bukit Kuang in Kemaman worth RM190 million.

The company also built the Batu Maung interchange of the Second Penang Bridge for RM152 million. It was also the main contractor for the construction of the Third Klang Bridge, which is estimated to cost about RM238 million.

The completion of the Third Klang Bridge seems to have been delayed to December this year from the earlier target of July when construction commenced two years ago. Questions sent to the Ministry of Works requesting updates on the project went unanswered as at press time.

Besides the East Coast Highway and the Third Klang Bridge, Cergas Murni was also involved in upgrading the existing road from Lojing to Pos Blau, located about 34km from Tanah Rata in Cameron Highlands.

According to information obtained from the Companies Commission of Malaysia (SSM), Cergas Murni was profitable over the five years to Dec 31, 2014 (FY2014). In FY2014, it made a RM9.98 million profit after tax (PAT), 41.3% lower than in the previous financial year.

Its current liabilities stood at RM50.8 million while its current assets were RM118.4 million as at end FY2014. The company has yet to file its financial results for FY2015.

Hasrat Sedaya, a company that is 70%-owned by Datin Nurhaliza Abdullah, got the CB2 package of the SUKE project worth RM257.61 million, in a joint venture with Zelan Construction Sdn Bhd, a subsidiary of Bursa Malaysia-listed Zelan Bhd.

Hasrat Sedaya is the main contractor for the Rawang Bypass project, a highway that connects the Federal Route 1 (towards Rawang) to Rawang town, reducing travel time between Serendah and Kuala Lumpur to about 30 minutes, from two hours during peak hours.

The project was awarded to Hasrat Sedaya in 2005 for RM203 million. However, due to structural changes from a cut-then-fill to an elevated highway across the Kanching Forest Reserve, the project required an additional budget of RM400 million.

As for SMPP, the company was awarded the biggest package of the SUKE project, worth RM1.05 billion. The company is 80%-owned by Ku Haris Ku Mahmud, who is also its managing director. The contract is the second billion-ringgit project for SMPP.

In July 2012, SMPP was awarded a RM1.1 billion contract by MRT Corp for the construction and completion of viaduct guideways and other associated works from the Sungai Buloh to Kota Damansara MRT stations.

According to information available on SSM’s website, SMPP made a revenue of RM325.5 million in FY2014 ended Dec 31. However, its PAT was only RM2.66 million, translating into a margin of only 0.82%.

Meanwhile, ML Sepakat Sdn Bhd, a company that is 70%-owned by Mokhtar Abdullah, does not seem to have experience in the construction of elevated structures. According to the company’s website, its expertise seems to be in site clearance, earthworks, piling, drainage and roadwork.

ML Sepakat was awarded package CA4, together with CHEC, worth RM939.86 million. It is understood that its partnership with the Chinese company gave ML Sepakat’s bid an advantage.

Prior to the SUKE award, ML Sepakat’s largest contract was the execution and completion of earthworks and other common infrastructure works for Phase 1 of the Gerbang Nusajaya development, worth RM158.8 million, according to its website.

ML Sepakat appears to be on a stable financial footing. According to SSM, the company’s current assets stood at RM132.93 million in FY2014 ended Dec 31, while its current liabilities were RM95.4 million.

As for Hatimuda Sdn Bhd, based on the list of projects on its website, the company seems to be an expert in water infrastructure, including the rehabilitation and upgrading of water treatment plants and construction and completion of river monitoring stations.

The company was awarded a RM315.8 million contract for the SUKE project, together with HCM Engineering Sdn Bhd, a subsidiary of Protasco Bhd. The latter has experience in road and bridge construction, as well as road maintenance.

Hatimuda’s current assets stood at RM93.7 million as at FY2014 ended Dec 31, while its current liabilities were RM85.5 million, according to SSM data. It is 95%-owned by Zainal Bachik, who is also its director.