15/12: Gamuda, MMC win RM12.5 billion Malaysian rail project

By Stephanie Phang

(Bloomberg) -- Gamuda Bhd. and MMC Corp. won a 12.5 billion ringgit ($3.8 billion) contract to build a railway in western Malaysia, the nation's biggest rail project.

The 329-kilometer (204 mile) double-rail link connecting Ipoh in Perak state to Padang Besar on the northern border with Thailand, will take five years to complete, Gamuda, the country's second-largest builder by market value, said in a statement today.

Malaysia revived the project, first awarded to the companies in 2003, to replace a single rail system and build new stations as Prime Minister Abdullah Ahmad Badawi seeks to boost economic growth by lifting public spending. Revenue from the project will contribute to Gamuda's earnings this fiscal year ending July 2008, the Petaling Jaya-based company said.

``Their numbers are going to come in very strongly from this year onward,'' said Wong Chew Hann, an analyst at Aseambankers Malaysia Bhd. with a ``buy'' rating on Gamuda stock. Completing the project ``shouldn't be a problem.''

The original contract awarded in October 2003 was valued at 14.5 billion ringgit, and included a link in the south. Abdullah, who came into power in November that year, postponed the project in December to cut spending and trim the nation's deficit.

Gamuda and MMC received a letter of acceptance from the government today to design and build the rail line for 12.5 billion ringgit, to be paid progressively, Gamuda said in a statement to the stock exchange today. The companies were given preliminary government approval in June.

The rail link will complement double-tracked railway lines connecting the country's central region to the north and cut travel time from Kuala Lumpur to Butterworth in the north to three hours from nine, MMC said in an e-mailed statement.

Kuala Lumpur-based MMC is a Malaysian construction and port company backed by billionaire Syed Mokhtar Al-Bukhary.

Trans-Asia Line

``In the future, a completely double-tracked Padang Besar to Johor Bharu railway line is envisioned to form part of the Trans- Asia railway line spanning from Singapore to Kunming, China,'' MMC said. Johor Bharu is the city nearest Singapore in southern Peninsular Malaysia.

The construction will now be funded by the government entirely, and not by Gamuda and MMC through private financing as announced in June, MMC said in an e-mailed statement.

``There will be no concession. Over the long-run, it will be a disadvantage for the consortium given the potential earnings,'' said Kamarulzaman Hassan, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur. ``However, the consortium would carry less risk and also does not have to raise the financing.''

Kamarulzaman has a ``sell'' recommendation on Gamuda's stock, with a target price of 4.75 ringgit, saying investors have ``priced in the double-tracking project into the current price.''

Guarantee Bond

The venture will give the government a performance bond of 624.3 million ringgit, or 5 percent of the contract value, as a guarantee before work begins, Gamuda said. It will also provide a ``design warranty bond'' for the same amount before a certificate of completion is issued, it said.

The venture will award about 8 billion ringgit worth of contracts to local contractors and consultants over the next six months as part of the project, Gamuda said.

The project will help boost the economic growth in the northern states of Perlis, Kedah, Perak and Penang to 8 percent a year from 6 percent, and create 100,000 jobs, the company said.

Gamuda and MMC were halted from trading this afternoon on the Malaysian stock exchange for the announcement. Gamuda rose 4 percent to 4.64 ringgit today before it was halted. MMC slid 0.6 percent to 8.80 ringgit.

Gamuda will resume trading on Dec. 17. MMC hasn't said when its stock will resume trading.