UNITED Engineers (M) Bhd (UEM) expects its wholly-owned subsidiary Expressway Lingkaran Tengah Sdn Bhd (Elite) to return to profitability in the current financial year ending Dec 31, UEM managing director Abdul Wahid Omar said.
Wahid told reporters in Kuala Lumpur yesterday that while Elite's commercial debt settlement scheme, completed in March last year had stabilised the company, its debts of RM1.05bil with an average interest rate of 10% were still a burden.
He said in the light of the RM300mil interest-free loan extended recently by the government as part of a toll compensation arrangement, Elite had decided to refinance its entire commercial debt with an RM800mil Al-Bai Bithaman Ajil Islamic debt securities facility, which could generate cost savings of 3%, or some RM22mil, annually.
With this significant savings in financing cost and the benefit of higher toll revenue this year, we believe Elite will be able to return to profitability in the financial year 2003, Wahid said after the signing for the RM800mil Al-Bai Bithaman Ajil Islamic debt securities between Elite and Amanah Short Deposits Bhd, the arranger of the facility.
Wahid and managing director Suhaimi Halim represented Elite, while chairman Datuk Mohd Ramli Mat Wajib and executive director Megat Hisham Megat Mahmud signed on behalf of Amanah Short.
Elite is the operator of a toll road concession for the North South Central Link Expressway, which was opened in 1997, linking Kuala Lumpur to the KL International Airport (KLIA). Elite's concession runs until 2030.
A report by Rating Agency Malaysia Bhd (RAM) indicated that Elite incurred an operating loss before tax of RM9mil in the financial year ended Dec 31, 2002, compared with an operating profit before tax of RM54.92mil previously.
Wahid estimated Elite's toll collection last year at about RM100mil. We registered about 7% growth in traffic volume last year. We expect the volume to grow further this year as we will have the full benefit from the shift of airport operations from Subang to KLIA, which was completed in April last year, he said.
Wahid said the RM800mil Al-Bai Bithaman Ajil Islamic securities would raise net proceeds of RM781mil, the bulk of which would go towards refinancing Elite's borrowings.
The securities, which have been fully subscribed by Amanah Short, will be issued in 10 tranches, based on private placement vide bought-deal basis, with non-detachable secondary bonds redeemable semi-annually for each series of maturity.
The facility, which has been accorded an indicative rating of AA3 by RAM, is for tenures of three to 12 years. UEM is targeting to issue the securities on Jan 24.
Wahid said the RM800mil Islamic debt securities were the third Islamic bonds issued by the UEM-Renong group within the last 12 months, noting that the group had raised RM7bil from the Islamic bond market in that period.
We will continue to look at the Islamic bond market when there is opportunity for refinancing our existing debts, or for financing new projects, he said.
Ramli said that as at Dec 31, Amanah Short had arranged the issuance of 18 private debt securities (PDS) totalling about RM6bil, of which eight PDS worth about RM3bil were raised via Islamic PDS instruments.
He said that more and more Islamic funds and unit trust funds tapping the bond market had turned to Islamic PDS as a means to diversify their portfolios.