21 May 2007: Corporate: Puzzle over bank's move on KL Monorail
By Lim Ai Leen
Now that receivers and managers have been appointed at KL Monorail Systems Sdn Bhd (KLMS), it seems that parent company KL Infrastructure Group (KLIG) has little choice but to give up its monorail concession without compensation.
KLMS failed to pay Bank Pembangunan Malaysia Bhd RM4.24 million in interest by April 29, causing the bank to seek repayment of RM906 million (the whole loan plus interest outstanding) by May 10. Receivers and managers Mohd Anwar Yahya and Cho Choo Meng were appointed on behalf of the bank last Monday, after KLMS failed to settle the debt.
KLMS built, and now operates and maintains the city's monorail system. It signed the concession agreement with the government in December 2000, for an original period of 40 years. The project cost RM1.2 billion, and was financed by RM260 million in equity, a RM300 million government support loan and a RM620 million infrastructure loan from Bank Pembangunan.
It's well known that the KLIG group has been in the red since it started running the monorail system in August 2003. Net losses as at financial year ended April 30, 2006, were RM80.6 million. Annual revenue has only averaged RM29 million over the last three years.
However, industry observers are questioning why the bank is turning up the heat and seizing control of KLMS' assets and finances now.
It is believed that in January, the monorail operator met with the government, Syarikat Prasarana Negara Bhd and Bank Pembangunan to discuss a "mutual termination" of the concession. Sources familiar with the talks say it was agreed that state transport arm Prasarana would take over the operational assets of KLMS and assume all its loan liabilities. In return, say the sources, KLIG will continue with its sub-lease of Jalan-Jalan Xintiandi — a riverside strip in Brickfields. KLIG will also share its monorail advertising income from its wholly owned subsidiary, KL Multimedia Sdn Bhd, with Prasarana.
Prasarana is the state infrastructure company set up to own public transport assets. It is owned by the Ministry of Finance. Its assets are operated by Rapid KL (acronym for Rangkaian Pengangkutan Integrasi Deras Sdn Bhd), another government-owned vehicle which runs the city's light rail transit and trunk and feeder buses.
Bank Pembangunan, also owned by the government, is a development finance institution that funds infrastructure, maritime and high technology projects. As it typically lends to spur public interest development, as in KLIG's case, its loans tend to have long gestation periods, an initial interest-free phase and more flexible restructuring terms.
It is understood that Bank Pembangunan extended the due date for the RM4.24 million interest payment, from last December to April, because of the January talks. Sources say the government conducted a due diligence exercise at KLMS after the talks.
"There was an implicit understanding that Bank Pembangunan would grant KLIG further extensions until the handover is completed. Also, the mutual termination of the concession is part of the government's move to integrate the public transport system under Prasarana, hence the due diligence. Now, there appears to be a backtracking on this understanding," says a source.
To be fair, in demanding repayment and appointing receivers, Bank Pembangunan is merely exercising its rights as lender. A bank source says there has been no change in the bank's stance and that "too many extensions were given [to KLMS] already".
KLIG, however, is seeking legal advice on its rights under the concession. It has said that its fare revenues didn't meet original projections because "traffic restraining measures" were not implemented, presumably by the administration. It also says the government disallowed a fare increase in 2005, even though a fare review is provided for in the concession agreement. "Additionally, it rejected our valid claims for fare compensation," states its announcement three weeks ago.
Sources say the company may seek a judicial review of the government's decision not to compensate it when fares didn't go up two years ago.
"KLIG is just asking for what was promised in the concession agreement. The fare compensation is close to RM10 million, based on the difference in average fares multiplied by actual ridership. If it was paid, the company may not have defaulted on its interest payment," explains an executive familiar with the matter. Monthly ridership was about 1.3 million passengers in the last financial year.
Meanwhile, speculation is rife that a well-connected third party could be interested in the monorail's advertising business. KL Multimedia sells advertising space at the 11 monorail stations and along routes. It shares its revenues — about RM13 million last year — with KLMS. Now that receivers have been appointed at KLMS, industry insiders say this share of the business could be up for grabs.
Despite this setback, KLIG and its owners, the M-Trans group, are still the country's only home-grown monorail makers. Hence, the group continues to bid for local projects — in particular, the Penang monorail project with Scomi Engineering — and for overseas monorail projects in the Middle East, Maldives and Pakistan.