This article first appeared in The Edge Malaysia Weekly on October 10, 2022 - October 16, 2022

IJM Corp Bhd is believed to be in discussions with Sapura Holdings Sdn Bhd and SMH Rail Sdn Bhd to jointly bid for the upcoming systems turnkey contract for the MRT Line 3 (MRT3).

While IJM is one of two construction giants in the local arena, Sapura Holdings — which is slated to be the lead contractor — has experience in managing rail systems projects. SMH Rail is a locomotive manufacturer with an operating plant in Rasa, Hulu Selangor.

“Sapura [Holdings] has done a lot of such jobs [rail systems projects] in the past, and its scope of work is going to be much bigger than that of [both] IJM and SMH Rail when it comes to system works, so naturally, they will be the lead partner in the consortium,” says one source.

Among others, Sapura Holdings managed the system works packages of the MRT Lines 1 and 2.

Another source familiar with the three companies forming the joint venture for the MRT3 system works tender cautions that the consortium may have difficulty securing funding.

Sapura Holdings is the vehicle of brothers Tan Sri Shahril Shamsuddin and Datuk Shahriman Shamsuddin. According to CTOS, it has shares in 53 companies, including a 51% stake in publicly traded Sapura Resources Bhd and a 12.94% stake in Practice Note 17 company Sapura Energy Bhd.

The weak financials of oil and gas outfit Sapura Energy over the past few years could be weighing down Sapura Holdings, which has been in the red since 2018. According to data compiled by Experian Information Services (Malaysia) Sdn Bhd, Sapura Holdings, in its most recent financial year ended January 2021, suffered a net loss of RM84.33 million, which was already a big improvement on the net loss of RM298.6 million in FY2020 and RM1.34 billion in FY2019.

Its shareholders’ equity has fallen from RM520.5 million in 2017, to RM144.63 million in 2021. Its current ratio — its ability to pay short-term liabilities — has also fallen to 1.19 times in 2021, from a high of 3.91 times in 2019.

When asked to confirm or deny whether IJM is indeed partnering with Sapura Holdings and SMH Rail to take part in the system works turnkey contractor tender for MRT3, the construction group says it is interested to participate in the construction of the MRT3, but can neither confirm nor deny its interest in the tender.

“The tender for the said package has yet to be called. At the moment, IJM can neither confirm our interest in the systems turnkey contractor role, nor have we made any decision on forming a consortium with potential partners,” says the group’s spokesperson.

MRT Lingkaran Sdn Bhd, the asset owner of the MRT3 project, has issued a notice of pre-qualification for package STC301, for the appointment of a systems turnkey contractor for the line. The briefing for the pre-qualification exercise will be held on Oct 19.

This means that IJM will need to secure its partners, Sapura Holdings and SMH Rail, soon if it is interested to qualify for and participate in the tender. Note that IJM is not known to be a system works contractor, but more for civil engineering and construction.

The technical requirements for a successful bid in the systems turnkey package include all joint venture parties or consortium partners having the requisite railway system works experience, with one of the partners being an electric train original equipment manufacturer (OEM) or provider.

The electric train OEM or provider must have delivered at least 70 electric train cars, cumulatively over 10 years, with Level 4 grade of automation. An electric train provider is defined as any company that is not an OEM of metro electric trains, and possessing the requisite experience and track record in managing electric train contracts and/or train assembly and shall establish an electric train assembly plant or facilities in Malaysia for the purpose of implementing the MRT3 project.

The applicant (the JV or consortium) must also have been awarded or successfully completed railway system projects with a total of RM1 billion cumulative contract value for the past 10 years.

Meanwhile, the applicant’s shareholders’ funds must not be less than RM150 million for it to qualify for the tender, according to the notice and it must also have positive cumulative earnings before interest, taxes, depreciation and amortisation over the past five years.

Putting the financial situation of Sapura Holdings aside, the consortium, if it is formed, would be made up of companies that have considerable experience in undertaking and managing rail-related contracts. For the MRT Line 1 (MRT1), SMH Rail, through a consortium with Germany’s Siemens AG and its Malaysian subsidiary Siemens Malaysia Sdn Bhd, secured the engineering, procurement, construction, testing and commissioning (EPCTC) contract for electric trains worth RM1.78 billion.

The 58 four-car driverless train sets for the MRT1 were assembled locally at SMH Rail’s plant.

For the MRT2 project, the consortium of Hyundai-Rotem Company, Apex Communications Sdn Bhd and POSCO Engineering Co Ltd were awarded the EPCTC contract for 49 electric trains, of which 47 were assembled by SMH Rail at its plant in Rasa. The electric train contract for the MRT2 was valued at RM1.62 billion.

In April this year, SMH Rail announced that it had won a US$85 million contract to deliver 40 monorail cars to the Mumbai Metropolitan Region Development Authority (MMRDA), via a joint venture with Medha Servo, based in Hyderabad.

Meanwhile, IJM, through its subsidiary IJM Construction Sdn Bhd, has been awarded multiple civil construction work contracts for the Klang Valley MRT project, worth billions of ringgit, involving construction and completion of viaduct guideways as well as the elevated stations.

As for Sapura Holdings, through its subsidiary Sapura Research Sdn Bhd, the company has been awarded an EPCTC contract by the government for an integrated radio network for both the MRT1 and MRT2, with the package for MRT2 also including EPCTC for commercial telecommunication infrastructure and information technology systems.

Sapura Rail Systems Sdn Bhd, another Sapura company, has also been awarded the communication system and integrated supervisory control system contracts for the Johor Baru–Singapore Rapid Transit Link project.

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