Frankly Speaking: Pestech’s troubles turn focus on rail projects

This article first appeared in The Edge Malaysia Weekly, on February 6, 2023 - February 12, 2023.
Frankly Speaking: Pestech’s troubles turn focus on rail projects
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There are four major ongoing railway projects in the country and, interestingly, Pestech International Bhd has a role to play in all of them.

Pestech, which started as an engineering company that installed overhead transmission lines, has of late bagged the electrification works for several railway projects.

It is involved in Phase 1 of the Klang Valley Double Track Electrification project, the Gemas-Johor Baru double track project and the Mass Rapid Transit 2 (MRT2) job. In December 2021, the company made a major breakthrough when it won the RM743 million upgrading works for the KLIA aero-train system works.

Apart from the railway jobs, Pestech has transmission line contracts in Cambodia and the Philippines. It is a major player in Cambodia. 

But the company is not exactly in the best of shape at the moment. Two of its main shareholders have been charged in court for alleged abetment, together with another key management personnel, in relation to the MRT2 project.

All three are the prime movers of the company, whose share price has hit an all-time low. Its market capitalisation fell to RM241 million following news of the corruption charges. Pestech has stated that its key officials have denied any wrongdoing.

The company, which was supposed to raise between RM63 million and RM70 million from a placement of 10% of its shares, has aborted the exercise. It completed only one third of the placement at 55 sen per share in March last year, raising just above RM20 million.

Pestech’s shares are now trading at less than 25 sen apiece, which explains why the company has aborted the placement.

With an order book of RM1.7 billion, Pestech would need to have sufficient funds to run the projects until it gets paid.

Pestech’s KLIA aero train contract comes with a financing obligation where it has to fork out between RM300 million and RM350 million in the three years of development. Malaysia Airports Holdings Bhd starts paying Pestech over six years starting from 2025.

With the company aborting the placement and its share price in the doldrums, would the infrastructure projects, especially those in the railway sector, be impacted?

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