Construction Sector - Consortium Zenith BUCG for Penang traffic job OVERWEIGHT

- The Malaysian Insider (TMI) reports that the Penang government has picked Consortium Zenith BUCG Sdn Bhd as the contractor to undertake an underground tunnel linking the island to the mainland and three major highways projects. There is to be no cash payment involved, as the consortium would be paid-in-kind via a land swap and a 30-year concession on the tunnel.

- The report follows the tendering by the Penang government for its RM8bil traffic mitigation scheme announced last year. However, the exact cost is expected to be lower when the project is finalised.

- Key components of the project include:

- A 6.5km underground tunnel (Gurney Drive to Bagan Ajam)

- 4.2km highway (Gurney Drive to Tun Dr. Lim Chong Eu Expressway)

- Tun Dr. Lim Chong Eu Expressway - Bandar Baru Air Itam Bypass (4.6km); and

- Tg.Bungah-Teluk Bahang road (12km)

- The TMI report quoted the Penang government as clarifying that BUCG came up with the best proposal where it had accepted a reduced amount of 110 acres of land as payment-in-kind as opposed to an initial request of 150 acres. Other bidders had submitted proposals of ~400 acres.

- BUCG had also accepted other additional conditions being put in place by the Penang government. Firstly, the reclaimed land in Tg.Pinang would be handed over in stages based on the progress of the construction works.

- For the concession, the toll rates for the third link must be similar to that of the Second Penang Bridge. Thirdly, the Penang government would not provide any traffic guarantee for the third link. But, a formal award of the contract would only materialise after the finer details of the deal are agreed upon in a couple of months’ time – and is also subject to EIA- approval.

- BUCG or Beijing Urban Construction Group is one of China’s largest contractors, and built the country’s famed ‘Birds Nest’ Beijing National Stadium. BUCG is no stranger to Malaysia. It made its debut in Malaysia in 2008 by securing the contract to build Malton’s The Pearl @ KLCC along Jalan Stonor. BUCG is also currently the main contractor for OSK’s RM1bil-GDV Atria redevelopment project (to be completed in two phases by end-2014).

- Pending more details (e.g. toll rates, allowable plot ratio), we are unable to ascertain the implied land cost for Consortium Zenith BUCG.

- On the construction side, we only expect a formal award of the job post-elections. But, we envisage some sub-contracting roles for local contractors. In addition, building material players (Lafarge Malayan Cement, Ann Joo Resources and Lion Industries) are also tipped to benefit via this multi-year project.

Source: AmeSecurities