Project likely to be govt-funded

Even though the funds for the project can be raised by Prasanara, which means its debts will not be reflected on the government’s balance sheet, analysts remain concerned over the project’s viability.

“Project bankability and the form of participation are our main questions.

“The existing Klang Valley LRT and monorail systems, originally awarded under the build-operate-and-transfer (BOT) mode, suffered massive losses and were eventually taken over by the government, via Prasanara.

“Although Prasanara’s debts are off the government’s balance sheet, it remains to be seen the amount of money it can further raise to fund the new MRT system,” said Maybank Investment Bank analyst Wong Chew Hann in a report.

Analysts were mixed on whether the project is viable.

“It can be bankable if the government were to fund the project. That way, the operator will not be burdened with the high finance costs,” said OSK Research head of research Chris Eng.

Another analyst from a local research house remained pessimistic.

“Our existing lines are not profitable. It will be very difficult to see how the MRT will be profitable,” said the analyst who declined to be named.

While borrowing to fund the MRT project would run against the government’s aim to cut its budget deficit, economists believe there are ways to raise the money without putting too much pressure on the balance sheet.

“One of the ways the government can consider is to raise ultra-long-term bonds, something that goes beyond 20 years, like a half-a-century bond. This way, it will put less stress on its balance sheet,” said RAM Holdings Bhd group chief economist Dr Yeah Kim Leng.

The good news is that raising RM30 billion or more from bond sales will not be an issue, as the current capital market is flushed with liquidity. Currently, the Malaysian bond market is estimated to be close to RM600 billion and major investors like pension funds and insurance firms are hungry for quality paper.

“There’s still a sizable risk appetite among investors in the bond market,” Dr Yeah added.