MRCB to acquire George Kent's stake in LRT3 JV?

© Provided by The Edge

MALAYSIAN Resources Corp Bhd (MRCB) is said to be acquiring the stake owned by George Kent (M) Bhd in their joint-venture company (JV Co) MRCB George Kent Sdn Bhd (MRCBGK), the turnkey contractor of the RM16.6 billion Light Rail Transit Line 3 (LRT3) project. This latest development is the result of the arbitration between George Kent and MRCB concluded in May.

Under the final award of the arbitration, the arbitrator found a deadlock in the issue of shareholder funding under Clause 6.1(b) of the shareholders’ agreement (SHA) between MRCB and George Kent in the formation of MRCBGK.

This means George Kent has breached the SHA and that the Party A Notice (a notice on the shareholder agreement breach) that MRCB issued on Oct 24, 2019, was valid.

Pursuant to this, George Kent has been directed to confirm their agreement in writing within 21 days of the award to the appointment of an audit firm by MRCBGK’s management for the purposes of carrying out an independent valuation of the JV Co’s shares on a discounted cash-flow basis.

Unless the dispute between the two groups is resolved or MRCB withdraws its Party A Notice, MRCB shall be obliged upon receipt of the valuation to make an unconditional cash offer to buy all of George Kent’s shares in MRCBGK, while offering to sell its shares in the JV Co to George Kent at the same price.

The deadlock resolution process was expected to take four months. Since it has been almost four months, the process is believed to have ended and MRCB is said to have offered to acquire George Kent’s shares in MRCBGK. MRCB has the expertise in the construction sector to continue as the turnkey contractor of the LRT3 project.

Neither the value of George Kent’s stake in MRCBGK nor MRCB’s ability to finance the acquisition of the stake and carry out the task as turnkey contractor of the LRT3 project is known.

As at June 30, 2021, MRCB had RM426 million in cash and bank balances, financial assets worth RM275.77 million and investment properties worth RM1.46 billion. Its short- and long-term borrowings stood at RM710 million and RM1.24 billion respectively.

Meanwhile, George Kent had RM322.35 million in cash and bank balances, and financial assets worth RM37 million. Its short- and long-term borrowings stood at RM82.85 million and RM131.3 million respectively.

Sources privy to the matter say the Ministry of Finance (MOF), which oversees the LRT3 project, has no objections to MRCB’s acquisition of the stake from George Kent. This is the stand that the MOF has taken since Pakatan Harapan days, when the LRT3 contract was first revised.

Back in 2019, during the Pakatan Harapan administration, MOF is said to have issued a letter to MRCBGK, saying it would leave MRCB and George Kent to resolve matters between themselves.

“During PH’s time, MOF had already stated that it had no issues with MRCB’s acquiring George Kent’s stake in MRCBGK, as long as any changes in the shareholders of the turnkey contractor did not jeopardise the progress of the project,” says a source familiar with the matter.

“I believe MOF’s stand on this issue remains until today. There has been no change to this stand under Tengku Datuk Seri Zafrul Aziz, whether during Tan Sri Muhyiddin Yassin’s government or under Datuk Seri Ismail Sabri Yaakob.”

Zafrul was first appointed Minister of Finance on March 10, 2020, but resigned after the dissolution of Muhyiddin’s government on Aug 16. He was reappointed to the post by Ismail Sabri on Aug 30.

LRT3 is overseen by Prasarana Malaysia Bhd, an MOF-owned company tasked with the development of land public transport infrastructure in Malaysia’s major cities and urban areas, including monorail, bus rapid transit and city buses under the Rapid brand.

The Edge was unable to confirm with MRCB whether it plans to buy out George Kent from the turnkey contractor JV.

It is no secret that there have been disagreements between MRCB and George Kent. On Aug 13, 2019, MRCB received a Notice of Arbitration and Application for Emergency Arbitrator from George Kent in relation to the SHA that both parties had entered into on June 8, 2015.

On Sept 4, 2015, Prasarana appointed the JV Co as project delivery partner (PDP) for the LRT3 project. The PDP contract had then been revised to a fixed price contract, with MRCBGK becoming the turnkey contractor for Prasarana for the project on Jan 25, 2019.

MRCB and George Kent differ, however, in their interpretation of certain provisions of the SHA in relation to the options for securing financing for the JV Co, including the order of priority of these options.

According to MRCB, the financing options for MRCBGK are internal, third-party and shareholders’ funding.

On May 24, MRCB announced that the final award of arbitration had been received and the arbitrator at the Asian International Arbitration Centre, where the case is registered and heard, had concluded that George Kent had been found to have been in breach of the SHA.

MRCBGK has also had issues with Prasarana in the past. In December 2020, 17 contractors and consulting firms involved in the LRT3 project had jointly signed a letter to then prime minister Muhyiddin, MOF and the Ministry of Transport, alleging that they were owed RM700 million, as Prasarana had not paid them since July.

Its then chairman Datuk Seri Tajuddin Abdul Rahman had said Prasarana had not withheld payment to the LRT3 contractors, but that it was running low on liquidity to fund its operations and capital expenditure requirements. It had hoped for a capital injection from the federal government to help with the payments and was planning a RM1.5 billion sukuk to raise funds.

Prasarana then released RM375 million to the contractors following the outcry. It is not known how far behind the company is in paying the LRT3 contractors.

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