About MRCB ...

Its prospects remain uncertainty due to the timing of the EDL buyout, the acquisition of Nusa Gapurna Development Sdn Bhd may increase risk premium and management lacks direction without a CEO.

Other risk premiums include lower earnings factoring delay in launches, slower LRT recognition and lower order wins. Depletion of land at KL Sentral for Q Central and Sentral Residences.

The potential acquisition of Gapurna, owned by Datuk Mohamad Salim (60%) and the EPF (40%) will give MRCB access to 60 acres of prime landbank in PJ, Old Klang Roadin KL and SJ. But this could come with a higher risk premium as the EPF’s stake will be diluted if it is via a share swap. This more apparent if the deal is executed before the election.

Meanwhile, the EPF has dismissed talk that it is planning to sell its entire stake in MRCB. Speculation has been rife that EPF is looking to dispose of its stake in MRCB, as the company has failed to win any major government project since last August 2012.

A key catalyst is the RRIM where expect MRCB to have a major role.

It was reported in Sept 2012 that Government is looking to acquire the EDL in Johor Baru from MRCB for RM1.2bil, thus compensating the company for its non-tolling problems. While the price tag of RM1.2bil will more than cover the requirements needed to pay its unit MRCB Southern Link Bhd's bondholders of RM1.04bil, it is still less than MRCB's total development cost of the highway, which has been touted at about RM1.3bil.

MRCB Southern Link is the funding channel for the 8.1km EDL. The Government would at least need to compensate the bondholders and perhaps cover MRCB's equity portion of the EDL. MRCB's original equity value of the highway project was some RM270mil. Coupled with the bonds of RM1.04bil, this amounted to RM1.3bil. Thus the payment of RM1.2bil was still a shortfall of some RM100mil.

MRCB has built the toll road for nothing. It has taken all this risk to build the toll road and now (Sept 2012) the net impact is zero, if not slightly negative. However, it is good to get the EDL out of the way because other than that, things are going well for MRCB.

MRCB has bonds worth RM1.04bil, which consist of MRCB Southern Link's RM845mil secured senior sukuk (2008/2025) and RM199mil junior sukuk (2008/2027). With the non-tolling problems, both bonds were downgraded and put on “negative watch” by RAM Ratings Bhd, with the senior sukuk being downgraded to BB3 from A2, and the junior sukuk from to BBB2 from CI.