George Kent, MRCB arbitration won’t affect LRT3 partnership

by FARA AISYAH/ pic by BERNAMA

THE move by George Kent (M) Bhd (GKent) to initiate arbitration proceedings against Malaysian Resources Corp Bhd (MRCB) did not have an adverse impact on the counters as analysts believe both companies will continue to work together to complete the Light Rail Transit Line 3 (LRT3) project.

Analysts contacted said the key uncertainty for GKent has been removed following the renegotiation and restructuring of the LRT3’s project delivery partner (PDP) contract earlier this year and this dispute does not involve any compensation.

“The share prices are not badly impacted because there was no compensation involved in the dispute,” Hong Leong Investment Bank Bhd analyst Yip Kah Ming told The Malaysian Reserve.

“The arbitration seeks further clarification of certain provisions of the shareholders’ agreement, (but) we do not expect it will have significant impact on the counters,” he added.

GKent closed one sen or 0.93% lower to RM1.06 yesterday, giving it a market capitalisation of RM570.93 million.

MRCB was down three sen or 2.89% to 84 sen, valuing it at RM3.71 billion.

Yip maintains a ‘Buy’ call on GKent with a target price (TP) of RM1.43. He added that GKent’s balance sheet is very healthy with net cash of 44 sen per share amounting to 40% of current market capitalisation.

Kenanga Research analyst Adrian Ng is neutral on the news.

“It has no impact on LRT3’s progress, which is scheduled to resume work in full swing by next year. The arbitration is mainly due to difference of opinion in the interpretation of certain provisions of the shareholders’ agreement with regards to the options for securing of the financing requirements for the joint-venture (JV) company,” he stated in a research note yesterday.

Kenanga Research maintains a ‘Market Perform’ recommendation on GKent with a TP of RM1.15.

Risks to the call are higher/lower than expected margins and delay in construction works.

In an exchange filing on Tuesday, GKent announced it has the commencement of arbitration proceedings on MRCB pursuant to Clause 22 of the shareholders’ agreement dated June 8, 2015 entered into between the two parties.

“GKent and MRCB have a difference of opinion in the interpretation of certain provisions of the shareholders’ agreement with regards to the options for securing of the financing requirements for the JV.

“GKent, in exercising its rights under the shareholders’ agreement, has referred the matter as arbitration to seek certain declarations as to the interpretation of those provisions of the shareholders’ agreement,” the company noted in its filing.

GKent does not expect any material financial impact by reason of the commencement of the said arbitration proceedings other than legal cost to be incurred.

MRCB-GKent JV was selected as the PDP for LRT3 project in 2015. The partnership was one of the seven tender bidders for the billion ringgit rail system linking Bandar Utama and Klang.

LRT3 was among the first few mega projects reviewed by Putrajaya to trim its massive debt. In July last year, LRT3 project was resumed with a 47% reduction in its total cost to RM16.63 billion.

Following the government’s decision to change the structure of the LRT3 project to that of a fixed price contract, the JV company and Prasarana Malaysia Bhd signed the revised contract for the LRT3 project for the value of RM11.4 billion on Jan 25, 2019.