theedge,30 june,2008...Corporate: PKA willing to let PKFZ go

The Port Klang Authority (PKA) is treating Kuala Dimensi Sdn Bhd, the land owner and contractor of the controversial RM4.6 billion Port Klang Free Zone (PKFZ), as an unsecured creditor.
The port authority is also willing to hand over the project to Kuala Dimensi to reduce its losses. PKA had paid RM510 million to Kuala Dimensi last year and another RM360 million is scheduled to be paid on June 30. Another RM300 million is due in July.
PKA's newly-appointed chairman Datuk Lee Hwa Beng says he would be "personally happy" if they can take back the whole project.
"The financial burden is heavy on PKA because it has to pay interest to both Kuala Dimensi and the federal government," Lee tells The Edge. He adds that if Kuala Dimensi is willing to take back the project, he would speak to the Transport Minister on the matter.
"If they (Kuala Dimensi) are keen to take back PKFZ, then PKA will not have to pay the RM4 billion-plus outstanding for the project. It will release PKA from a heavy burden," says Lee.
He also says PKA is treating Kuala Dimensi as an unsecured creditor because the letter that was signed by the then Transport Minister Tan Sri Chan Kong Choy was not a guarantee by the government.
In September last year, the then deputy finance minister Datuk Dr Awang Adek Hussin denied in Parliament that the Transport Ministry had issued any letter of guarantee for the issuance of bonds for the development of PKFZ.
"It was only a letter of support to the Malaysian Rating Agency which only states that it will ensure payment would be made... it was not a letter of guarantee," Awang Adek was quoted as saying in Parliament.
To recap, in 2002, PKA acquired a piece of land in Pulau Indah from Kuala Dimensi and Wijaya Baru Global Bhd for more than RM1 billion. PKA subsequently gave the job of developing the land into a PKFZ to Kuala Dimensi and Wijaya Baru. The companies have a common shareholder in Datuk Seri Tiong King Sing, the MP for Bintulu.
The orginal cost of the project, which was to build a huge one-stop distribution centre in Pulau Indah, was RM2.5 billion. But the cost escalated to RM4.6 billion because of interest as it was on a deferred payment from PKA.
Kuala Dimensi, with the letter of support from the Transport Ministry (on the deferred payment from PKA) then issued papers in the debt market to raise the money to undertake the project. The papers got good ratings based on the assurance that the PKA payments would be met.
The letter of support for the project was supposedly signed by Chan.
But subsequently, the huge cost of completing the project drew criticism and the validity of the letter of support became an issue. The government even appointed PricewaterhouseCoopers to conduct an audit of the work done.
By then, Kuala Dimensi had already issued the bonds and the proceeds drawn down to complete the project.
Lee says the revenue from PKFZ is hardly enough to cover even the interest on the bonds.
"Never mind the revenue because the amount collected is much less than the interest paid or payable for the RM4 billion," he adds.
When the papers were issued by Kuala Dimensi, it got top ratings because of the letter of support from the ministry. But now, since PKA considers Kuala Dimensi as a non-secured creditor, there could be an impact on the ratings of its papers.
Generally, a non-secured debtor ranks lower in a debt recovery process than a secured creditor.
PKA does not have the financial resources to meet its obligations under the debt repayment programme. Hence, it has been proposed that the government give the port authority soft loans to help it meet its debt obligations.