Malaysian contractors' shares fall on MRT cost cut

An electronic board showing stock movements is seen at the Malaysia Stock Exchange in Kuala Lumpur.
An electronic board showing stock movements is seen at the Malaysia Stock Exchange in Kuala Lumpur.PHOTO: AFP

KUALA LUMPUR • Shares of Malaysian contractors plunged yesterday as the government intensified its efforts to rein in spending by reducing the cost of an almost US$14 billion (S$19.4 billion) mass rapid transit (MRT) project.

Shares of Gamuda slid by a record and MMC Corp fell to the lowest in nine years, after the Finance Ministry rejected an offer from the MMC-Gamuda consortium to build an underground portion of the MRT2 project. The government also shaved RM5.22 billion (S$1.7 billion) from the above-ground portion that will be constructed by the same group, the ministry said in an e-mailed statement on Sunday.

The South-east Asian nation has been grappling with debt and liabilities exceeding RM1 trillion and state revenue curbed by the removal of a sweeping consumption tax that was replaced with a more selective levy.

Since Prime Minister Mahathir Mohamad swept to power in May, he has reviewed billion-dollar transportation projects, and cancelled or deferred many of them due to budget constraints.

The MRT2 announcement "reinforces the government's priority with cost-down of major infrastructure projects", analyst Adrian Wong of Maybank Investment Bank wrote in a research note yesterday.

Construction Index Malaysia's infrastructure developers and contractors slumped across the board after the news, with the Bursa Malaysia Construction Index sliding 7 per cent to the lowest since April 2009. Gamuda fell as much as 28 per cent before closing at RM2.43 a share, while MMC lost up to 16 per cent to RM1.13, and IJM Corp ended 10.6 per cent lower.

  • $1.7b

  • Amount that the Malaysian government shaved from the above-ground portion of the MRT2 project that will be constructed by the MMC-Gamuda consortium, according to the Finance Ministry.

MMC-Gamuda in a statement yesterday evening said its termination from the project would affect over 20,000 people involved in the underground works from a supply chain of more than 600 Malaysian companies, Malaysiakini news site reported.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 09, 2018, with the headline 'Malaysian contractors' shares fall on MRT cost cut'. Print Edition | Subscribe