This article first appeared in The Edge Malaysia Weekly on August 28, 2023 - September 3, 2023

CONSTRUCTION giant IJM Corp Bhd, which is in the midst of taking up a 44.83% stake in Pestech International Bhd, has set its sights on bidding for the RM742.95 million aerotrain project with Malaysia Airports Holdings Bhd (MAHB), much to the chagrin of the other four bidders in the closed tender, sources say.

When asked, IJM declined to comment on whether it was participating in the bid.

The closed tender came about after MAHB terminated Pestech’s contract for the project for “various material breaches and its failure to remedy the same within a specific time frame”. Thus, the airport operator is required to invite other participants from the previous tender (which Pestech had won) to submit their proposals.

The four bidders are SMH Rail Sdn Bhd in a standalone bid; Tan Sri Syed Mokhtar Albukhary’s MMC Corp Bhd partnering Japan’s Mitsubishi Heavy Industries; Malaysian Resources Corp Bhd (MRCB) in a tie-up with Leitner-Poma of the US and privately held Hartasuma Sdn Bhd in partnership with Austrian company Doppelmayr Seilbahnen GmbH.

It is noteworthy that Pestech had partnered Canadian rail outfit Bombardier in the aerotrain contract. However, according to Pestech’s managing director and CEO Paul Lim Pay Chuan, Bombardier, a unit of Alstom, has been suspended.

Alstom had acquired Bombardier in 2021.

In a phone interview, when asked about the vexation of the other bidders with IJM for looking to bid for the aerotrain contract, Lim says, “It’s a free country right? IJM is also an infrastructure player. [If] IJM is bidding, of course, they will ask us to support them in their bid, we will be a subcontractor … there is no issue, is there?”

“Of course, IJM as a player in infrastructure will try. And, of course, if they are successful, we will support them. And if they are successful, we can then novate [the aerotrain contract to them] as they are our future major partner, major shareholder … it will be a better possible solution for the country.

“We have already completed 37% of the project. The rest of the jobs are in manufacturing, and the long lead time items have all been procured. The critical parts of the train are intact because Alstom is reputable … we are trying our best. We will look at our legal rights but we are happy to discuss the way forward. We do not want to be the party that is causing this problem,” Lim adds.

In an email response to The Edge, MAHB says this of IJM’s plan to bid: “On Aug 24, 2023, MAHB issued a tender by invitation to four companies that had participated in the previous tender for the aerotrain project, as guided by procurement best practices. The inclusion of any other participant in this tender by invitation is subject to the [MAHB] board’s deliberation and approval.”

Having Pestech participate in the aerotrain project tender through IJM may be an unpopular decision, and seen as unfair, depending on who is asked.

Truth be told, IJM, with a market capitalisation of about RM6 billion, is among the more prominent and respected construction companies in the country.

Hence, IJM’s plan to buy 44.83% of Pestech via the issuance of 800 million shares for RM124 million or 15.5 sen each has generated much interest, with many seeing the offer as a lifeline for Pestech. The offer of 15.5 sen is less than 30% of Pestech’s net asset per share of 53 sen as at end-March this year.

For its financial year ended March 2023 (FY2023), IJM recorded a net profit of RM158.27 million on revenue of RM4.57 billion. As at end-March this year, IJM had deposits, cash and bank balances of RM2.82 billion, short-term borrowings of RM1.7 billion and non-current term loans of RM1.06 billion. This translates into a net gearing of 0.2 times.

For FY2023, IJM had retained profits of RM4.02 billion.

IJM’s stock hit a 52-week high of RM1.78 last Friday but tapered off to end trading at RM1.71.

Of the other companies that are competing for the aerotrain contract, only MRCB is publicly traded. It has a market capitalisation of about RM1.8 billion and ended trading last Friday at 42 sen. MRCB’s stock hit its 52-week high of 43.5 sen on Aug 17.

MRCB, which is 36.21%-controlled by the Employees Provident Fund, registered a net profit of RM8.47 million on revenue of RM742.24 million in first quarter ended March this year. As at end-March, MRCB had deposits, cash and bank balances of RM854.62 million. On the other side of the balance sheet, it had long-term borrowings of RM1.67 billion and short-term debt commitments of RM906.91 million. These result in a net gearing of 0.33 times for MRCB.

Meanwhile, MMC Corp registered an after-tax profit of RM700.36 million on revenue of RM5.41 billion for its financial year ended December 2022. As at end-2022, MMC Corp had total assets of RM26.33 billion and total liabilities of RM14.8 billion.

SMH Rail is also a serious contender with a presence in more than 20 countries. It manufacturers locomotives, wagons and rail axles and undertakes maintenance, repair and overhaul of rail assets and infrastructure. In April last year, the company, in a joint venture with Hyderabad-based Medha Servo, was awarded a US$85 million or RM370.5 million contract to deliver 40 monorail cars for the Mumbai Metropolitan Region Development Authority.

See also "Pestech’s Low breaks his silence"  

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