This article first appeared in The Edge Malaysia Weekly, on December 28, 2015 - January 3, 2016.

SULTAN of Johor Sultan Ibrahim Sultan Iskandar has been active on the local corporate scene of late.

The Sultan last week sold his 20% stake in Berjaya Times Square Sdn Bhd back to Berjaya Assets Bhd for RM250 million — the same amount he paid when he acquired the shares in 2013. Meanwhile, he increased his stake in U Mobile Sdn Bhd from 10% to 15%.

Now, SIPP Rail Sdn Bhd — a company linked to the Sultan — is said to have taken a 10% stake in Express Rail Link Sdn Bhd (ERL). The move is seen as a way for SIPP Rail to gain a foothold in ERL ahead of the upcoming Kuala Lumpur-Singapore high speed rail (HSR) project, say industry observers.

ERL operates the KLIA Ekspres line between Kuala Lumpur International Airport, klia2 and KL. Its other shareholders are YTL Power International Bhd with a 45% stake, Lembaga Tabung Haji (TH) with 36% and Trisilco Equity Sdn Bhd, 9%.

It is worth noting that Sultan Ibrahim does not have a direct stake in SIPP Rail. The company is, however, 70% controlled by Datuk Daing A Malek Daing A Rahaman and 30% by Anuar Ahmed — two individuals who have been closely linked to the Sultan in the past.

If these names seem familiar, it is because Daing A Malek and Anuar are both shareholders of SIPP Energy Sdn Bhd, a company that had teamed up with YTL Power to bid for Project 3B — a 2,000mw coal-fired power plant project. Both SIPP Energy and SIPP Rail have a paid-up capital of only RM100,000 each, based on records from the Companies Commission of Malaysia.

Interestingly, Sultan Ibrahim used to be a 51% shareholder in SIPP Energy when the bid for Project 3B was underway, while Daing A Malek and Anuar each had a 24.5% stake. However, after the project was awarded to 1Malaysia Development Bhd, the Sultan ceased to be a shareholder, leaving Daing A Malek and Anuar with 70% and 30% shareholding in SIPP Energy respectively.

Daing A Malek is executive vice-chairman of Damansara Realty Bhd, in which he has an indirect 51% stake through Seaview Holdings Sdn Bhd. He is also executive chairman of Singapore-listed Astaka Holdings Ltd, where he has a 66.4% stake.

Before SIPP Rail bought into ERL, YTL Power, TH and Trisilco held equity interests of 50%, 40% and 10% respectively in the rail operator. Hence, it appears that every existing shareholder has been diluted by a pro rata 10% to allow SIPP Rail to take its 10% stake. In other words, YTL Power and TH should be aware of the new shareholder, since the dilution would require their consent.

So, what does the Sultan of Johor-linked company want with a company like ERL?

The short answer is to gain a foothold in the coming race for the HSR project, according to industry sources. Strictly speaking, ERL is the only private-sector company with a track record of operating a rail system. All other rail systems are controlled by government-linked companies.

While the line is only 57km long, it boasts the fastest trains operating in the country, with a maximum speed of 160kph.

Any HSR aspirations, however, will require SIPP Rail to partner a foreign company with HSR technology, but channel checks show that no alliance has been formed yet.

At present, the Japanese and the Chinese are seen as the strongest contenders for the project. The South Koreans and the Europeans — for example, Alstrom and Siemens — are also vying for the project.

SIPP Rail has two formidable partners — YTL Power and TH — which have the financial muscle to take on a project such as the HSR that has an estimated cost of over RM50 billion.

It is noteworthy that YTL Power’s relationship with companies linked to Sultan Ibrahim has not always been plain sailing. After losing Project 3B, the government awarded another power project — a 1,100mw to 1,400mw combined cycle gas turbine project — to SIPP Energy. YTL Power and Tenaga Nasional Bhd (TNB) were named as its partners in the project, but YTL Power subsequently pulled out.

TNB eventually also withdrew from the project, leaving SIPP Energy without a partner to help it develop the power project. The project was subsequently revoked by the government, but SIPP Energy is appealing against the decision.

Back to ERL, the company itself has been loss-making for the past four financial years up to June 2014, when it reported a loss before tax of RM30.47 million against revenue of RM197.14 million.

In total, ERL has accumulated losses of RM630.9 million. Recall that the company recently raised its train fares from RM35 a trip to RM55. SIPP Rail appears to have purchased the stake in ERL before the rates were increased.

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