Ong cries double standards in PKFZ bond payment

By Lee Wei Lian

July 30, 2010

Ong said the government’s insistence in paying KDSB was “foolhardy”. — file pic

KUALA LUMPUR, July 30 — Datuk Seri Ong Tee Keat questioned today the government’s decision to pay bondholders of the turn-key contractor in the Port Klang Free Zone (PKFZ) despite an ongoing legal dispute, when it had defaulted on the bonds of another government-backed port project.

The former transport minister was commenting on the decision of the transport ministry to direct the Port Klang Authority (PKA) to meet its payment obligations towards four special purpose vehicles (SPVs) established by PKFZ turn-key contractor, Kuala Dimensi Sdn Bhd (KDSB), to raise funds from the bond market.

The PKA had been under pressure to pay the KDSB bondholders partly over fears that a default would negatively affect the country’s fiscal ratings.

Ong pointed out, however, that the reported default on the RM240 million bond issued by Malaysian International Tuna Port Sdn Bhd (MITP) did not create a ripple in the market.

MITP, 40 per cent owned by the Fisheries Development Authority of Malaysia, defaulted on payments to bondholders last November. The bonds of both PKFZ and MITP were backed by government support letters.

“The fear of negative repercussions to our sovereign rating is unfounded,” he said.

Ong also said that the government did not take into account other considerations when deciding to pay KDSB bondholders.

“The justification behind the decision to ‘pay according to what has been decided much earlier, according to the schedule that was set a long time ago’ is a sweeping one and indeed foolhardy,” said Ong, referring to what Transport Minister Datuk Seri Kong Cho Ha said on Wednesday.

Kong insisted the payment schedule must be adhered to.

He added that the government did not guarantee the payments as there were no letters of guarantees given but only letters of support issued by former transport minister Datuk Seri Chan Kong Choy, who had in turn asserted that these did not amount to guarantees.

“In other words, the government is under no direct legal obligation to pay the bondholders,” said Ong.

He added that as the SPVs’ right to payment were subject to what was lawfully due to KDSB under the principal agreements. “It makes absolute sense to withhold payments to the SPVs pending determination of what is lawfully due to KDSB by the courts.”

Ong also said that “new facts” have been discovered — letters apparently revealing that KDSB had given undertakings or guarantees that it will cover any shortfall in repayments towards the bondholders.

Such letters should relieve pressure from the government to pay the bondholders till after the legal suit was settled as KDSB would make up the shortfall, explained Ong.

PKA has sued KDSB for about RM1.6 billion over alleged wrongful and excessive claims for works done. It, however, is scheduled to pay RM372 million to two KDSB SPVs by the end of this month.

On September 25 last year, PKA filed a lawsuit against KDSB seeking to either rescind previous development agreements and a declaration that KDSB is only entitled to reasonable compensation, or a declaration that all invoices and billing notices issued by KDSB to be null and void.

Of the RM372 million, RM222 million is owed to Free Zone Capital Bhd (FZCB) and RM150 million to Special Port Vehicle Bhd (SPVB).

PKA had last month paid RM350 million to another two KDSB SPVs — Transhipment Megahub Bhd and Valid Ventures Bhd.

PKA was forced to take a RM4.6 billion soft loan from the Ministry of Finance after costs ballooned from the initial estimate of less than RM2 billion. The loan tenure is 20 years and the first repayment is expected in November.