In January, words were circulating on social media of a highway company raided by MACC. It was said to be bigger in size than the elevated highway case. And by another April raid, it is said a Tan Sri was held under remand for 4 days to investigate wrongdoings related to an incomplete highway contract.
On May 1st, DagangNews.com reported of an alleged false claim for RM360 million involving issuance of RM1.3 billion extention of MEX II highway. Corporate Secret leaked that the remanded four members of the Board of Director of Maju Holdings, the concession holders of MEX controlled by Mahathir man, Tan Sri Abu Sahid Mohamed or widely known as Abu Juling.
Last week on May 22nd, Edge Daily reported MACC confirmed the false claim and corruption probe on Maju Holdings and the arrest of a Dato Seri.
It was already a give away when Edge Weekly May 12th-18th issue featured MEX as a cover story and raising the question it could lead to the departure of Abu Juling. Edge Weekly reproduced below:
Cover Story: The MEX mess
By M Shanmugam / The Edge Malaysia
After raising RM1.3 billion in debt in 2016, Maju Group’s MEX II now has just RM30 million left and an unfinished highway, leaving the government in a dilemma
THE 26km Maju Expressway (MEX), which links Kuala Lumpur to Putrajaya, recorded a peak traffic volume of 172,433 vehicles in the first half of 2024. At this pace, it is fast approaching its daily capacity of around 200,000 vehicles.
Nearly 18 years after opening, MEX is finally fulfilling its role as the main artery connecting the city to the country’s administrative capital. It is the jewel in the crown for Tan Sri Abu Sahid Mohamed, 74, who owns the Maju Group.
Despite being well connected, Abu Sahid has fallen out of favour for his failure to complete the 16.8km extension of MEX, dubbed MEX II and which links Putrajaya to Kuala Lumpur International Airport (KLIA).
Maju Group subsidiary MEX II Sdn Bhd (MEX II), the concessionaire for the toll project, is currently under investigation by the Malaysian Anti-Corruption Commission (MACC) over alleged false claims totalling RM416 million. MEX II had raised RM1.3 billion by issuing bonds in 2016 to build the extension, which was supposed to be completed in 2019. Six years on, the MEX II highway is reported to be 89% complete — a figure that has yet to be verified.
Worse still, MEX II has only RM30 million left — with RM29 million already pledged to banks under a financing facility. An incomplete highway effectively leaves bondholders in limbo because their only source of repayment is through toll collection.
Says a consultant: “Bondholders can recover money only if the highway is completed. MEX II has been placed under receivers and managers (R&M) since May 2022, but so far there is no solution in sight.”
Abu Sahid, who owns the Maju Group, has fallen out of favour for not completing the MEX II highway. (Photo by Suhaimi Yusuf/The Edge)
According to MEX II’s 2023 financial return, Abu Sahid is one of five directors in the company. The others are his son Mohd Faiq, Datin Paduka Alinah Ahmad, Dr Saravanan Sundramurthy and Datuk Mohamed Roslan Mohamed Shariff.
The MEX II highway was hit with a stop-work order in April 2019. Beyond that, MEX II has faced persistent cash-flow issues and has been unable to meet its bond obligations since late 2020.
The bondholders gave Maju Holdings Sdn Bhd, the ultimate holding company, several extensions to fulfil the obligations in 2021.
In May 2022, as the bondholders’ patience wore thin, they exercised their option to place MEX II under the supervision of R&M.
In the financial return for the period ended Dec 31, 2022, the external auditors raised a red flag, warning that the company lacked sufficient cash flow to complete the highway and meet its obligations to bondholders.
“MEX II has current liabilities of close to RM1.7 billion and the ability of the company as a going concern depends on its amicable settlement on its financial obligations by R&M,” the external auditor stated in its report.
MACC swings into action
The abandoned MEX II project had been on the government’s radar for more than a year. Several existing toll road concessionaires were approached to assess the incomplete project, with PLUS Malaysia Bhd believed to be among them. Sources indicate that PLUS was willing to take over MEX II, but only if bondholders agreed to a significant haircut.
“The offer on the table required bondholders to take a haircut of more than 50%. This did not go down well with the bondholders,” says a bondholder. “They felt that taking a ‘haircut’ on their debts would not solve the problems as long as there was no change in the people responsible for completing the highway. The bondholders turned the pressure on R&M to come up with a solution.”
Despite ongoing negotiations with bondholders and financial stress, MEX II remained largely under the public’s radar until last month, when MACC initiated an investigation into the company for alleged false claims totalling RM416 million.
The money, which is part of the RM1.3 billion that was raised to construct the highway, was allegedly withdrawn via false claims in 2016 and 2017.
According to reports, on or around May 1, MACC detained four individuals, including a woman, to assist with their investigation. The four were released a few days later. On May 3, MACC obtained a remand order for the former CEO of Maju Holdings to further aid in the investigation.
“Whether anything happens after the investigations remains to be seen. But after six years, there is a resolve to settle the issue at MEX II,” says the bondholder.
The principal proponent for the MEX II project is Maju Holdings and the consultant is HSS Engineering Bhd (KL:HSSEB). The lead arranger of the bonds was CIMB Banking Group and a large portion was subscribed by banks and government-linked institutions.
Sources say some bond subscribers were also invested in the debt issued by MEX 1 Capital Bhd. The bonds, amounting to RM1.13 billion, are secured against the cash flow from MEX.
“After a restructuring in 2022, the leakage of funds from MEX to Maju Holdings stopped. Within two years, the ratings improved,” says a source. “Bondholders believe a similar outcome is possible for MEX II — if there is firm resolve from Putrajaya.”
According to sources, investigators are tracing the money trail and focusing on how the drawdowns from the bond issuances were approved.
“The drawdowns on the MEX II project are linked to the project’s progress. On paper, the project is reported to be 89% complete, leaving 11% to be finished. However, the actual situation on the ground appears to tell a different story.
“The shortfall to complete the project could be around RM900 million, and there is virtually no money left in MEX II, which is why the government has stepped in,” says a source.
There have been two R&Ms between 2022 and 2024. The first was EY Insolvency Services PLT , which was appointed in May 2022. Roughly 10 months later, BDO Consulting Sdn Bhd took over the role. The reason for the change in R&M is unclear. R&M’s role is to identify a potential white knight to revive the project.
Government likely to call for RFP
It is learnt that the Works Ministry, Malaysian Highway Authority and the Ministry of Finance (MoF) met last week to resolve the problems with MEX II.
“The government is likely to issue a request for proposal (RFP) from bidders to take over the project from Maju Holdings. The tricky part, however, will be figuring out how to resolve the financial issues to ensure that MEX II can be completed while keeping the toll rates reasonable,” says a consultant.
He adds that MEX II has essentially exhausted the RM1.3 billion raised, yet there are still outstanding works needed to complete the highway.
“Assuming the remaining 11% of work costs RM150 million, and the alleged false claims total RM416 million, the cost to complete the project could conservatively be at least RM560 million. That is an optimistic view,” says the consultant.
“That means MEX II liabilities could easily breach RM2 billion. How much toll can any white knight charge motorists to recover the amount spent?”
A RM2 billion bond at a 7% coupon would easily cost RM140 million in coupon payments a year. Assuming that the traffic volume is 50,000 cars a day and the toll rate is RM10, revenue comes to about RM180 million a year.
“After deducting operational costs and maintenance, there won’t be enough left to cover even the coupon payments for the RM2 billion debt. And that’s assuming there are motorists willing to pay the RM10 toll,” says the consultant, noting that there are alternative highways to KLIA.
“The rule of thumb is less than 40 sen per kilometre. So, a toll rate of RM5 to RM6 will be reasonable.”
Moreover, if the toll rate becomes more expensive than other complementing highways, the expressway is likely to attract traffic only during peak periods.
A MEX II traffic consultant report projects traffic to exceed 70,000 cars a day after 2030. There is no certainty about these numbers, however, as even the busiest highways in the country currently do not exceed 120,000 cars a day.
Nevertheless, the MEX II highway will not be short of suitors. The real question lies in the pricing and whether it includes the completed MEX, where traffic volume is rising.
“MEX II cannot be a stand-alone entity. It has to come with MEX. Nobody in their right mind would consider MEX II without taking control of MEX because MEX II depends on the traffic flow from MEX,” says the highway consultant.
“If MEX fails to function for any reason, MEX II will not be able to attract the necessary traffic.”
It is learnt that, besides PLUS, other parties were interested in MEX II. The key question, however, is valuations and whether the MEX II highway comes with MEX.
In the past, Abu Sahid had announced plans to monetise the highway, either by floating shares on the stock exchange or through an asset injection into a public-listed company. Nothing materialised, partly because of valuations. This time, however, other factors will also play a role in any potential deal.
A section of the uncompleted extension of MEX. It was supposed to be completed by end-2019. (Photo by Shahrin Yahya/The Edge)
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Abu Juling long been known as a Mahathir man and kept getting into one controversial deal after another such as the takeover of Perwaja Steel, exorbitant sales of building to Tabung Haji, and now MEX highway. The list is not exhaustive.
Is it the end of the road for the 58-year old corporate player who rose from the humble beginning of an LCE holder starting out as a pump attendant in Singapore to had his start as a scrap metal dealer with late Tan Sri Eric Chia, also another Mahathir man?
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Cover Story: Will Abu Sahid finally exit MEX?
By M Shanmugam / The Edge Malaysia
THE jewel in the crown of Tan Sri Abu Sahid Mohamed’s Maju Group is MEX Expressway Sdn Bhd (MESB), concessionaire and operator of the Maju Expressway (MEX), which is seeing robust daily traffic.
Abu Sahid has been unable, however, to tap the finances of the 26km highway since 2022, following a restructuring that put bondholders in charge of the company and kept a tight lid on the cost of maintaining the highway.
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“The highway is hitting new highs in terms of traffic volume. The government compensation owed to MESB is growing. But [the ultimate holding company] Maju Holdings Sdn Bhd is unable to restructure and tap into the growing traffic because the highway is essentially under the control of bondholders,” says a banker.
“If Abu Sahid wants to capitalise on MEX, he has to buy out the bondholders. But getting the confidence of financiers to fund the exercise has been a problem. The situation has become worse with [the MACC] investigations into MEX II.”
The government is seeking a white knight to rescue MEX II — the 16.8km extension of MEX that connects Putrajaya to Kuala Lumpur International Airport (KLIA). MEX II is currently mired in legal and financial woes.
“Any company that goes in to rescue MEX II would want some kind of control over MEX because both highways are connected. Moreover, to make MEX II financially viable, there has to be some kind of financial assistance from the government, bondholders or a cross-subsidy from the healthy toll collection from MEX,” says the banker.
As at end-2023, about RM100 million of MESB’s estimated revenue of RM236 million was government compensation for enforcing a toll rate lower than that stipulated in the concession agreement (CA). In 2022, the compensation amount was RM41 million from a toll revenue of RM180 million.
The rise in compensation payments in 2023 was due to a scheduled toll hike that did not take place. The amount is expected to keep growing until the concession ends in 2045.
A highway consultant says the government has made it clear that it will not compensate any concessionaire. In response, all concessionaires have been restructuring their agreements to align cash flows with liabilities, in line with the government’s move to cut subsidies.
“This is why MESB’s receivables are rising and could affect ratings in the future, unless the bonds are restructured to extend the concession period and repayment schedule,” says the highway consultant.
According to a RAM review, close to 40% of the toll revenue recognised by MESB comes from government compensation. The rating agency estimated total government compensation to MESB could amount to a staggering RM2.2 billion by 2040, based on the current scheduled toll rates. And this is why the government wants the bonds, which are issued by the immediate holding company of MESB, to be restructured.
Bond issues at Bright Focus
The immediate holding company of MESB is MEX 1 Capital Bhd, formerly known as Bright Focus Bhd. Bright Focus had issued a RM1.35 billion Islamic bond in 2014 with a rating of “AA” because repayment was from the proceeds of toll collection from MEX.
A bondholder says it was not all “hunky-dory” with the bonds. “There was nothing ‘bright’ about the company because it was not ‘focused’ on repaying debts raised using the toll collection of MEX,” he says.
Maju Holdings, which Abu Sahid controls, was in charge of Bright Focus then. Although MESB, as the concessionaire, is responsible for maintaining the highway, most maintenance work is handled at the shareholder level, specifically by Maju Holdings
“The bondholders of Bright Focus could not do anything, as the cost of maintaining the highway increased and money was being moved to Maju Holdings. The trustees issued a legal letter in 2019 and it prompted a restructuring,” says the bondholder.
By 2019, Bright Focus’ bond was downgraded to “BB1” and at risk of a further downgrade to a “D” rating on account of money being advanced to Maju Holdings. According to a RAM report, RM97 million was advanced in 2018 to the ultimate holding company, Maju Holdings, violating the terms of the bonds.
During the restructuring process, investment bankers identified several flaws in the bond structure. Among these were a single signatory on Bright Focus’ accounts and a lack of controls on the permissible spending for highway maintenance.
“There were more than 15 companies maintaining the highway, most of which led to Maju Holdings,” says a bondholder.
The restructuring, which saw Bright Focus change its name to MEX 1 Capital Bhd, was completed in 2022, along with changes that ensured money could not be disbursed without bondholders’ approval.
Among the significant changes were signatories to the account, the composition of directors in MEX 1 Capital and imposition of several levels of approval before any spending to maintain and upkeep the highway received the green light.
“The board at MEX 1 Capital now comprises two independent directors representing bondholders. The board at MESB has only one representative from Maju Group and there is a tight rein on expenditure to upkeep the highway,” says the bondholder.
MEX 1 Capital’s latest rating upgrade to “A1” reflects the improved governance structure in the company.
Government funds to build MEX
The improved ratings on MEX 1 Capital’s bonds are of no help, however, to Abu Sahid, who is saddled with the incomplete MEX II highway. The project was started in 2016 with bonds of RM1.3 billion raised and was supposed to be completed by 2019.
MEX II has only RM30 million left on its books and its concessionaire, MEX II Sdn Bhd, has been under receivers and managers (R&M) since 2022 for defaulting on its bonds.
Also, the Malaysian Anti-Corruption Commission (MACC) is investigating the concessionaire for false claims of RM416 million drawn down supposedly for work done.
Abu Sahid himself has been open to the sale of MEX. In 2012, auto parts manufacturer EP Manufacturing Bhd (KL:EPMB) proposed to buy the highway for RM1.2 billion. The deal was frowned upon and even invited a rebuke from former prime minister Tun Dr Mahathir Mohamad.
In response to a question on the proposed sale of MEX, Dr Mahathir had said: “You sell what is yours … You don’t sell what belongs to others. It could be as bad as selling APs [approved permits].”
This comment clearly refers to the RM976.6 million in government funding provided to MESB for the construction of MEX, which remains on the company’s books but has since dwindled to about RM770 million.
In the construction industry, the view was that Abu Sahid did not need to borrow extensively to complete the 26km MEX because of this government support.
According to a rating report, MESB had a share capital of only RM60 million and Abu Sahid put in another RM87 million as advance. MESB raised RM529 million in borrowings to complete the highway, which was opened in 2008.
Abu Sahid was known to be among those who benefited from previous administrations, especially under Dr Mahathir. His big break came from the privatisation of loss-making Perwaja Steel Sdn Bhd in 1996 for just above RM1 billion then. The agreement was finally signed in 2003. Between 1996 and 2003, Abu Sahid managed Perwaja Steel, and the transactions between him and the government during that period, before the handover, were opaque.
Furthermore, the final amount that he paid for privatising the steel company was not disclosed.
Abu Sahid is also said to have had a fairly favourable deal with Lembaga Tabung Haji for the construction of one of the two towers in Maju Junction, located in the heart of Kuala Lumpur.
It will come as no surprise if Abu Sahid exits MEX, but will it be on his terms?
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