Construction Sector - First drawdown of MRT project by this month OVERWEIGHT

- Federal-backed DanaInfra Nasional would be able to  gauge how much more funds are required to be raised for phase 1 of the Klang Valley MRT project by end-1Q12, said the Business Times in a report today. This follows earlier reports indicating that MRT Corp had revealed that the final cost of the Sg.Buloh-Kajang MRT line would be determined by yearend, when all the packages are awarded.

- For the funding portion, we gather that DanaInfra would require some RM8bil to finance the SBK MRT line for the period up to 30 June 2012. This follows the signing of an agreement between the federal unit and several banks for the first tranche of the funding requirements.

- This would entail some RM8bil worth of government guaranteed sukuk-financing programme. The first drawdown is scheduled to be on the 20^th  of this month – under the issuance of RM2.4bil Islamic Medium-Term Notes (IMTN) with tenors of 10, 12 and 15 years.

- Out of this amount, RM1bil would be utilised to repay the bridging loans, while the balance is for the construction of the MRT line. A second issuance of the IMTN worth RM1.5bil is due to kick in this October. AmInvestment Bank Bhd, CIMB Investment Bank Bhd, Maybank Investment Bank Bhd and RHB Investment Bank Bhd have been roped-in as joint lead arrangers for the financing programme.

- With the funding mechanism already in place, we remain upbeat that progress on the rollout of the MRT project continues to be encouraging.  From our channel checks, MRT Corp has awarded some RM15.5bil worth of projects under 33 packages. This represents some 78% of the initial cost estimate of ~RM20bil for this massive project. The remaining 85 packages are to be awarded by year-end. 

- For the balance of the major packages remaining, our channel checks indicate that package v8 (Taman Mesra-Kajang) and half of the eight elevated station packages would be awarded by August. This would subsequently be followed by the remaining four station packages in October. Another major job still up for grabs is the Kajang Depot under the open category.

- While competition for the remaining packages remains intense, we gather that Naim Holdings would stand a chance in either the Kajang Depot or package v8 under the bumi category. On the other hand, WCT is in for a shot for the station works under the open category – having submitted two bids worth a combined RM300mil-RM400mil.

- Likewise, we also expect investor expectations to slowly gravitate towards the suppliers of building materials, particularly with the multi-year supply prospects for cement and steel. We would advocate Ann Joo Resources (steel), Lion Industries (steel), Lafarge Malayan Cement (cement), IJM Corp (via ICP: concrete-based products) and KimLun Corp (tunnel lining, segmental box girdles).

- As for MRT 2 (circle line) and 3 (radial: North-South), feasibility studies are nearing completion. Based on MRT Corp’s timeline, contracts could be dished out by end-2013, and targeted for completion within six years – i.e. 2020. But any firm decision on both lines would only be known after the 13th General Election.

Source: AmeSecurities