Foreign parties seen taking lead in MRT3

PETALING JAYA: Foreign parties are likely to take the lead in Mass Rapid Transit Line 3 (MRT3) as the financing proposal and technical experience requirements look to rule out Malaysian contractors for the project, which is estimated to cost RM35 billion to RM40 billion.
Contrary to the past where project delivery partners (PDP) are appointed for the MRT1 and MRT2 projects, MRT Corp has stated in its notice of tender released on Monday that it is calling for local construction and infrastructure development companies to participate in a tender to select a turnkey contractor to build and finance, on a turnkey basis.
The tenderers for MRT3 must present a financial proposal for at least 90% financing of the project cost, with a minimum financing period of 30 years and a moratorium on the first eight years. The financing can only be undertaken in ringgit, US dollar, Chinese yuan, Japanese yen or euro.
The successful bidder will be responsible for the engineering, procurement, construction, testing and commissioning of the 40km MRT3, featuring 32km of twin-bored tunnels and 8km of elevated viaducts. There will be a total of 26 stations – 19 underground and seven elevated. Joint ventures looking to tender must not have more than eight members.
Gamuda Bhd and MMC Corp Bhd are the PDPs for both MRT1 and MRT2.
Given that huge funding required for MRT3, AmBank Research believes the race has narrowed down to only Chinese and Japanese contractors, who have backing from their governments to provide soft loans for infrastructure in developing countries.
Nomura Research said in a note today that it is surprised by the timing of this tender, especially as the alignment has not been finalised yet, despite the government’s intention to bring forward the MRT3’s completion date to 2025.
Based on the preliminary assessment of the tender details, it opined that there are potentially negative implications for Malaysian construction stocks, as such a huge financing commitment likely rules out any Malaysian contractor being the lead contractor. It added that this is because of the relative balance sheet risks and the fact that none of the Malaysian contractors seem to fulfil all the technical experience criteria for the lead contractor.
Hence, it believes that a foreign contractor is likely to be the turnkey lead.
“We believe none of the Malaysian corporates are keen on the financing role, and will only choose to bid at the subcontractor level for portions of the MRT3.”
However, Nomura said this is negative for the local contractors, especially Gamuda which has historically been the biggest beneficiary due to its PDP role and healthy margins for tunnelling.
“Moreover for smaller contractors there will be very few viaduct packages to bid for due to the smaller elevated stretch – resulting in most Line 2 viaduct package winners missing out on Line 3 packages,” it said.
With Line 3 turning out to be a negative for the sector, Nomura reiterated its “buy” rating on Sunway Construction Group Bhd, which has already secured the biggest package from LRT3, and has a record RM6.6 billion order book.
Meanwhile, it is keeping a “neutral” call on Gamuda with a target price of RM5.20 as the MRT3 details seem not very promising for the company.
Despite that, Gamuda is confident that it is still likely to secure the tunnelling package for MRT3 even without the PDP model, according to AmBank, which has maintained a “buy” call on its stock with a fair value of RM5.95.