Short Position

  • Business
  • Saturday, 04 May 2019

Real savings?

BY refinancing a RM595.5mil facility tied to the Children’s Specialist Hospital located at Hospital UKM in Kuala Lumpur, the government has saved some RM80mil.

This was the gist of a terse announcement by Sarawak-based Zecon Bhd to the stock exchange. The syndicated term financing of RM595.5mil was arranged to undertake the development and construction of the hospital in 2014. The savings came about after the facility was refinanced with a term loan from a commercial bank.

While the savings of RM80mil will come in handy for the government, another hospital project where Zecon was given the mandate to undertake remains unresolved.

Based on the latest report, progress on the Petra Jaya hospital that was awarded to Zecon in April 2013 for RM495mil is less than 30%. In August last year, Zecon received the termination notice from the Public Works Department (JKR), which it is disputing.

Together with the termination, the JKR sought to make good a RM24.75mil bank guarantee, which is Zecon’s performance bond for the project. However, the court has granted an injunction in favour of Zecon to stop the execution of the bank guarantee, pending the disposal of the suit between the company and JKR.

Based on Zecon’s announcement, it is claiming RM55mil for work done and certified but not yet paid by JKR. On top of that, the company has filed for arbitration a sum of RM155mil for alleged wrongful termination of the project.

The 300-bed Petra Jaya Hospital was initially awarded at a cost of RM495mil. But considering the delays and dispute amounts between JKR and Zecon, the cost of completing the hospital project would be much higher.

Which brings us to question whether the RM80mil savings from the refinancing of the Chidren’s Specialist Hospital is really good enough.

What is next for banks?

THE housing sector has been in the doldrums for the past few years. Stock of unsold inventory continues to rise as the mismatch between developers and buyers shows no sign of narrowing. Developers have reacted by cutting down on the number of homes being launched. There is no point building more homes if people are not going to buy them.

While developers grapple with ways to sell their inventory, the reduction in the number of new homes being sold will have a telling repercussion. Firstly, that means lesser economic activity as fewer homes being built will translate to less work in the supply chain to build those new homes.

For the banks, that will present another predicament. Banks do make money from lending to new homes and when the avenue for them to lend gets into a bottleneck, it will mean that banks will be fighting to secure a smaller pool of eligible home-buyers to lend to. Directly, that will mean that future bank profits will get crimped. Or is that the situation?

One banker did acknowledge that the fewer number of newbuilds will affect profitability, but that is being circumvented by other avenues banks can lend money to. One such area is personal financing.

Yes, personal financing is risky. It is generally unsecured loans, but with the advent of data analytics, banks are using algorithms to sieve through the gamut of borrowers to ascertain who are the more credible borrowers they can lend money to. Data analytics will determine from the information that banks have access to who are the less risky borrowers.

That will, however, lead to more consumption, higher debt but without the asset backing. Banks, which have already ramped up their lending to SMEs, will make a profit but that is in a segment where there is little productivity growth. The government can try to wring the hands of banks to lend, but there is little headway to be made when the use of AI can cut through political pressure to continue making money for financial institutions.

Utilising idle land

WHEN Economic Affairs Minister Datuk Seri Mohamed Azmin Ali spoke about utilising idle land for agriculture, the idea does have its merits in terms of addressing the economic issues of the country.

The use of land for cash crop apart from oil palm was clearly spelt out in the Felda White Paper when the government looked at different avenues to allow smallholders to utilise the land available for higher-yielding crop other than oil palm.

With the government not wanting to approve more land for oil palm plantations, and with the food bill running into billions of ringgit a year with no signs of reducing, the idea of using idle government land for more productive purposes seems like the right idea.

Malaysia’s food exports are growing slower than its imports and with Malaysia sufficient in whole chickens and eggs, there seems a lot more that can be done to reduce the food bill that reaches into tens of billions of ringgit a year.

Doing that will achieve a few things. Firstly, it will give more employment opportunities to Malaysia to till land to ensure higher incomes. Banish the thought of farmers being poor and in rags. The modern farmer is one that is making very good money if they are able to plant cash crops in demand.

These crops will be able to translate to lower imports of food, higher exports and at the same time, save on foreign currency.

It is hard work and there must be Malaysians’ will to get back to an industry many feel is unenviable. But in short, there is good money to be made in agriculture and it is hoped that any future plans by the government is able to extract the right rewards from an honest day’s work.

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