Mudajaya in the spotlight, but for all the wrong reasons

PETALING JAYA: In the past week or so, Mudajaya Group Bhd has been in the limelight - but for all the wrong reasons.

The events were triggered by a letter to the Securities Commission (SC) alleging improprieties in relation to Mudajaya’s power plant project in India.

The SC had confirmed that it was looking into the matter.

Meanwhile the stock, which had been under selling pressure for most of the week, gained some ground in Friday’s trade.

Mudajaya started out as a construction company in the 1970s, founded by its current managing director Ng Ying Loong.

In 2004, Mudajaya was listed at an initial public offering price of RM1.28.

Mudajaya’s first foray into India was in early 2000 when it was involved in a road building project in Udaipur-Ratanpur-Gandhinagar in Gujarat, India for RM114mil.

But it was only in 2006, when it started making inroads into India’s power plant sector, that it became more well known.

Although it had its roots in construction, it was soon building its name as a full fledged independent power producer (IPP) in India.

Today, Mudajaya has built more than 10 power plants.

Its construction orderbook presently stands at RM5.6bil, and the company has mentioned that it is looking to add another RM1bil in 2010.

In its financial year ended Dec 31 2009, Mudajaya’s net profit increased 164% to RM119mil from the year before, thanks largely to locked-in contracts from India.

Of its orderbook of RM5.6bil, RM3.4bil worth of jobs come from India.

Mudajaya’s breakthrough in India happened in April 2006, when, together with its partner RKM Powergen Pvt Ltd, they signed an agreement with the authorities of Chhattisgarh, India, to build and operate a 1,200MW coal-fired plant.

The project was carried out by RKM Powergen Pvt Ltd, in which Mudajaya held 26% while RK Powergen held the rest.

The value of the first phase of the power plant was estimated at RM869 mil.

Then in May 2009, RKM Powergen signed a power purchase agreement for Phase 2.

It should be noted that SC’s review of Mudajaya’s Indian project stemmed from a poison pen letter and related to Mudajaya’s cost of investment in RKM Powergen Pvt Ltd and the returns on its engineering and procurement contracts.

Some analysts had also noted that the company enjoyed exceptionally high profit margins compared to its peers.

Mudajaya’s Ng has told the media that the high margins were due to incentives put in place by the government of China, where most of its equipment were procured.

Last Friday, the SC said it was still reviewing the affairs of Mudajaya but added that it aimed to conclude the review as soon as possible.

‘Surveillance’ stage

The SC also said it had engaged all the relevant parties, including the management of Mudajaya.

It is understood that SC’s review of Mudajaya is still at the “surveillance” stage and has not escalated into a full investigation.

Mudajaya has also made known its aspirations to widen its overseas reach.

The company is looking to break into the Indonesia, Indochina and the Middle East markets.

The projects the group is vying for include a RM400mil IPP in Laos and a RM300mil exploration and production concession contract (EPCC) in Indonesia.

On the home front, Mudajaya is one of the contractors shortlisted for the much-anticipated LRT extension project.

Its most recent local contracts involve building a hospital in Penang and a low cost hotel in Johor.

According to OSK Research, Phase 1 of the Indian contract hit 41.9% completion as of June versus 23.2% in January.

“We understand that deliveries for the key plant components are slightly delayed to August from June as scheduled earlier due to minor specification changes.

“Nonetheless, management reaffirms that the entire project is on track for completion by end-2012,” said OSK analyst Jeremy Goh.

Goh expects the bulk of the revenue recognition for Phase 1 to take effect this year.

There are also plans to expand capacity by another 2x360MW when the existing four plants near completion.

Meanwhile, the Indian government intends to set up nine Ultra Mega Power Plants (UMPPs), three of which have been awarded.

The next two up for grabs are located in Chhattisgarh and Orissa, for which the prequalification of tenders will be conducted by end-August.

Evaluation is expected to take two to three months before the final tenders are called, which could then take another six to seven months before the results are known.

Each UMPP will have a capacity of 4,000MW and cost about US$5bil.

Mudajaya plans to bid for both UMPPs via a consortium.

Tanjong Plc has said it intends to bid for the UMPPs together with Mudajaya.

Currently, the biggest shareholder in Mudajaya is Dataran Sentral (M) Sdn Bhd, with a 24.33% stake.

According to Mudajaya’s latest annual report, the Mulpha group holds a substantial stake of 21.37% in the company through Mulpha Infrastructure Holdings Sdn Bhd.

In a filing to Bursa Malaysia on Thursday, the company said it bought back a total of one million of its shares at prices from RM3.80 to RM4.55 worth RM4.29mil. After the purchase, Mudajaya has cumulative net outstanding treasury shares of 2.62 million.

Mudajaya had received the approval of shareholders during its EGM to buy back 10% of its shares for the year. As of March 31, its revenue jumped 90.91% to RM239.35mil while net profit tripled to RM50.6mil from RM14.04mil.