IJM builds more assets in India with Rajasthan project


  • Business
  • Friday, 11 Mar 2005

By C.S. TAN

The award of the RM480mil highway project in Rajasthan, India, to IJM Corp Bhd on Tuesday has increased its order book of overseas jobs to about RM800mil, said managing director Datuk Krishnan Tan. 

This is IJM's second overseas contract in the past two weeks. It recently announced that one of its joint-venture companies in the Middle East had won a RM263mil contract to construct a building at the Dubai International Airport. 

In the Rajasthan project, IJM has 100% ownership, unlike in its earlier toll highway projects in India where it was a member of a consortium of contractors. 

IJM has the entire construction job in the latest project. It means that it has to carry the capital cost of the whole project, as it was awarded on a build-operate-transfer basis. 

The project development cost of RM480mil will be partly covered by a concession grant of RM86mil from the National Highway Authority of India.  

IJM has a concession period of 25 years to collect tolls on the highway. 

Krishnan told StarBiz that the investment in the toll highway was in line with the group's strategy to build up assets in India. 

IJM has investments in three other toll highways in India, which have just started tolling. It is too early, however, to tell if toll revenue will meet projections. 

“We are confident it will meet projections. Just look at the growth in car sales in India. If we had made a mistake (in the projections), it would just take a bit longer (to meet projections),” he added. 

India was the fastest growing car market in the world in percentage terms last year. Unit sales grew by 24% to cross the one million mark. 

While IJM will have to carry the whole cost of the Rajasthan highway, it can borrow 70% of it in India. For this reason, Krishnan finds it conducive to do business, and to build up assets, there. The group will raise the balance 30% from offshore banks. 

As the capital cost was heavy, Krishnan said that in time IJM would look for strategic investors to take up some equity in its portfolio of road concessions in India. 

Meanwhile, an analyst said he believed that IJM would not book in construction profits from the Rajasthan highway project. It will construct the highway at cost so that the investment cost will be low.  

Hence, it will eventually recognise only the tolling profits, which will have a higher margin as a result of this accounting treatment. 

 IJM :  [Stock Watch]  [News]

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