Shares of Malaysia contractors slide as Mahathir deepens spending cuts

Kuala Lumpur

MALAYSIAN contractors are plunging as the government intensified its efforts to rein in spending by reducing the cost of an almost US$14 billion mass rapid transit project.

Shares of Gamuda Bhd 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$1.74 billion) from the above-ground portion that will be constructed by the same group, the ministry said in an e-mailed statement on Sunday.

Malaysia 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 into 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", Adrian Wong, an analyst at Maybank Investment Bank Bhd, wrote in a research note on Monday as he downgraded his recommendation for Gamuda to sell.

"MMC-Gamuda's decision to walk away from the underground package is due to too significant a cost-down required by the government, to the extent that the risk-reward is no longer tenable," Mr Wong wrote.

Malaysia's infrastructure develo-pers 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 to RM2.32 a share, while MMC lost up to 13 per cent to RM1.17 and IJM Corp dropped 8 per cent during morning trading in Kuala Lumpur.

The MRT2 is set to connect Putrajaya, where the government is based, to Sungai Buloh in the north of the country's capital Kuala Lumpur. The project was initially earmarked to cost about RM28 billion, but the budget ballooned to RM56.93 billion following a plan to extend a line to Bandar Malaysia, which the previous government sought to develop as a transportation hub.

The government holds "steadfastly to obtaining value for money" on all public expenditure, "especially when large borrowings are required", Finance Minister Lim Guan Eng said in the statement on Sunday. BLOOMBERG