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MEEF - Middle East Projects News & Analyses - previous page



Malaysia's MMC in $30b Saudi economic city deal


Reuters


 
Kuala Lumpur: Malaysian engineering firm MMC said it and a Saudi partner won a $30 billion, 30-year contract to build an economic city in Saudi Arabia, Malaysia's most valuable overseas deal, as builders look abroad to drive growth.

MMC, controlled by reclusive tycoon Syed Mokhtar Al Bukhary, said it and Saudi Binladin Group won the contract to build the 117 square km "Jizan Economic City", 725 km south of Jeddah.

One analyst said the deal should boost MMC's annual pre-tax profit by more than $19 million a year or around 11.5 per cent of 2005 pre-tax levels.

"MMC has hit paydirt," said Chris Eng, analyst at OSK Securities in Kuala Lumpur. "A back-of-the-envelope calculation would boost profit before tax annually ... by 70 million ringgit ($19.2 million) and likely lift our fair value to 4.06 ringgit."

Trading in MMC shares was suspended for a day yesterday. The stock closed at a 17-week high of 3.36 ringgit on Friday.

"It's a huge deal for a company with a market value of $1.4 billion," said a dealer with a foreign brokerage. "Expect its share price to react substantially."

Mainly-Muslim Malaysia, a global leader in Islamic financing, and Syed Mokhtar, said to have strong Middle East connections, are well positioned to benefit from links with other Islamic nations, as it seeks to export its expertise in infrastructure building. It is also the latest in a long list of Malaysian builders, including Gamuda, WCT Engineering and IJM, that have been forced to compete overseas as jobs dried up at home as a result of government efforts to cut the budget deficit.

"When pump priming stopped (in Malaysia), these companies had no choice but to go abroad and find jobs, which made them more competitive," said Kelvin Miranda, who helps manage $200 million at Asian Asset Management.

"But for the size, it's not new for the sector; it will come down to how good their project management is," he said.

 
The project includes a port, aluminium smelter, steel processing plant, oil refinery, copper processing plant, as well as fisheries and an agro-based industry.


Still a risky business

Analysts warn the move is not without risk.

"If you get your calculations wrong, you can end up making a loss," said Pong Teng Siew, head of research at EONCap Securities. "In the case of Saudi Arabia, they are under a bit of pressure to get their economy going. There's plenty of oil money."

The project would be Saudi Arabia's fourth economic city as the country looks to attract foreign investment and the transfer of technology.

MMC is forecast to earn 2006 net profit of 280 million ringgit, down more than a quarter from last year, according to Reuters Estimates.


 

 

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