PETALING JAYA: The Government is looking to acquire the Eastern Dispersal Link (EDL) in Johor Baru from Malaysian Resources Corp Bhd (MRCB) for RM1.2bil, thus compensating the company for its non-tolling problems, said sources close to the deal.
While the price tag of RM1.2bil will more than cover the requirements needed to pay its unit MRCB Southern Link Bhd's bondholders of RM1.04bil, it is still less than MRCB's total development cost of the highway, which has been touted at about RM1.3bil.
MRCB Southern Link is the funding channel for the 8.1km EDL.
Analysts said the price tag of RM1.2bil was within expectations.
“The Government would at least need to compensate the bondholders and perhaps cover MRCB's equity portion of the EDL. If MRCB can make a small profit out of it, then it would be really good,” said a construction analyst.
He added that MRCB's original equity value of the highway project was some RM270mil. Coupled with the bonds of RM1.04bil, this amounted to RM1.3bil. Thus the payment of RM1.2bil was still a shortfall of some RM100mil.
“Basically, MRCB has built the toll road for nothing. It has taken all this risk to build the toll road and now the net impact is zero, if not slightly negative. However, it is good to get the EDL out of the way because other than that, things are going well for MRCB,” said the construction analyst.
The EDL has been a thorn in MRCB's side with an interest cost of some RM7mil and operating cost of about RM2mil per month. These costs have severely affected MRCB's earnings in the last quarter.
For the second quarter to June 30, MRCB's net profit dropped 71.32% to RM5.16mil on the back of a 45.42% increase in revenue to RM341.51mil.
“With the resolution of this problem, MRCB's margins will stabilise moving forward as it will no longer be affected by the interest cost,” said MIDF Research analyst Iqbal Zainal.
Iqbal said the price tag of RM1.2bil was close to his projection of RM1.15bil. His projection was based on EDL's equity value of RM580mil an average traffic volume of 40,000 to 50,000 travellers and a pre-tax margin of 50%.
UOB Kay Hian values EDL's equity value at RM546mil based on 50,000 vehicles per day and toll charge of RM6.20 per travel.
To recap, problems arose because MRCB Southern Link was unable to collect toll for the EDL.
The highway provides a direct linkage between the customs and quarantine complexes at Tanjung Puteri and the North-South Expressway via the new Pandan Interchange.
It is an open toll system with dual three-lane carriageway. The company was granted a 34-year concession to collect toll.
The EDL was opened to the public on April 1 but has not commenced tolling as per concession agreement because it would result in all vehicles going into Singapore paying toll.
MRCB has bonds worth RM1.04bil, which consist of MRCB Southern Link's RM845mil secured senior sukuk (2008/2025) and RM199mil junior sukuk (2008/2027).
With the non-tolling problems, both bonds were downgraded and put on “negative watch” by RAM Ratings Bhd, with the senior sukuk being downgraded to BB3 from A2, and the junior sukuk from to BBB2 from CI.
Meanwhile, the Employees Provident Fund (EPF) has dismissed talk that it is planning to sell its entire stake in MRCB.
Speculation has been rife that EPF is looking to dispose of its stake in MRCB, as the company has failed to win any major government project since last August.