KUALA LUMPUR – Malaysian Resources Corp Bhd (MRCB) has won an arbitration dispute against George Kent (M) Bhd (GKM) over a disagreement on financing requirements for their joint venture (JV) company MRCB George Kent Sdn Bhd (MRCBGK), the concessionaire of the Light Rail Transit Line 3 (LRT3).
George Kent filed the arbitration on August 13, 2019, claiming “a difference of opinion in the interpretation of certain provisions of the shareholders agreement (SHA) with regard to the options for securing of the financing requirements for the JV company”.
Market participants said it is an awkward moment as it is akin to suing one’s partner, which is uncommon.
The court also ruled that George Kent has to do the following within 21 days of the award:
“(a) Issue written confirmation to MRCB George Kent Sdn Bhd (“JV Co”) of GKM’s agreement to the appointment by the management of the JV Co of a specified audit firm to independently value the shares of the JV Co on a discounted cash flow basis, in accordance with Clause 6.2(a)2 of the SHA”; and,
“(b) Take all necessary steps to ensure its nominees on the board of directors of the JV Co do not, in any way, obstruct or interfere with the appointment by the management of the JV Co of the specified audit firm to independently value the shares of the JV Co on a discounted cash flow basis, in accordance with Clause 6.2(a)2 of the SHA.”
MRCB in a bourse filing yesterday said legal and arbitration costs are reserved for further award, adding that “all other claims and counterclaims are dismissed”.
In a separate filing, George Kent acknowledged the decision, saying the company “is declared to have acted in breach of the SHA and directed to specifically perform its obligations under the SHA”.
The deadlock will mean that, upon receipt of the valuation, either MRCB or George Kent will make an unconditional cash offer to buy all of each other’s shares in the JV. This deadlock resolution process is expected to take approximately four months.
MRCB and George Kent had signed the SHA on June 8, 2015, setting up their JV on a 50:50 basis to tender for the LRT3 from Bandar Utama, Petaling Jaya, to Johan Setia, Klang.
On September 4, 2015, Prasarana Malaysia Bhd had appointed MRCBGK as project delivery partner for the LRT3 venture.
On January 25, 2019, the JV company signed a revised price-fixed contract worth RM11.4 billion, following the government’s decision to change the structure of the project.
It is understood that now the onus is on MRCBGK to obtain an independent valuation for LRT3, and that George Kent will need to show it has the funds and capacity to take over the project.
Insiders believe this will be difficult for George Kent, and obtaining a bank guarantee for the project will also pose the company a problem.
“Further, if indeed it has the money, will the government allow a non-Bumiputera company to take over a government project?” asked an insider.
It is understood that MRCB has guaranteed the bank for the full RM568 million sum, while George Kent has not given its 50% guarantee for its share of the bank guarantee amount, which is said to be lower than its market capitalisation. – The Vibes, May 25, 2021
