KUALA LUMPUR, Dec 1 — Malaysian companies with exposure to Dubai came under some selling pressure yesterday, although many firms maintained that their exposure was minimal.
Local construction firms are unlikely to be affected by the massive debt crisis affecting Dubai as most of the players had either withdrawn or were at the tail-end of completing projects in Dubai, Master Builders Association Malaysia president Ng Kee Leen told local daily The Star. “There aren’t many local construction companies left in Dubai.”
Likewise, state officials foresaw no major fall-out from Dubai’s financial implosion. Johor’s chief minister Datuk Abdul Ghani Othman clarified over the weekend that Damac Properties was the only Dubai-based investor in Iskandar Malaysia and that it had pulled out from a planned purchase of a RM400 million plot of land months before. Most of the proposed Middle East investments in Iskandar amounting to tens of millions of ringgit, are from Kuwait, Saudi Arabia and Abu Dhabi.
Even so, the nervousness is understandable given that since the Asian financial crisis Malaysian officials and company executives have aggressively courted the booming Middle East region for much needed investments and projects.
In July, Prime Minister Datuk Seri Najib Razak announced the Saudi government had agreed, through private company PetroSaudi International Ltd, to co-invest in a US$2.5 billion (RM8.49 billion) joint-venture company that would make strategic investments in high-impact projects in Malaysia. Another joint venture amounting to US$1 billion with Abu Dhabi sovereign funds was also reported to be in the pipeline.
It is unclear if it would materialise now that Abu Dhabi — the wealthy United Arab Emirates capital seen by many as Dubai’s saviour — could be caught up in the rescue of its neighbour’s US$80 billion financial mess, the result of indiscriminate borrowing over the years to build grandiose projects.
Malaysian contractors have been generally careful about their Middle East exposure. In an interview with BT in 2007, Gamuda group managing director Lin Yun Ling had said the infrastructure specialist preferred to seek projects in Indo-China rather than in West Asia. Its current projects in the region are in Qatar, and include the Doha International Airport.
An official told The Star over the weekend the company was “not significantly exposed” in the construction sector in Dubai. Even so, its shares have lost about 10 cent since last week, although it rebounded slightly yesterday.
Analysts have pointed out among local construction firms, Gamuda and IJM have the least exposure in the Middle East.
But Malaysian firms had an inkling of the pain to come.
Early this year, construction player WCT had its 2007 joint award of the US$1.3 billion Meydan Racecourse in Dubai abruptly terminated on grounds the project was behind schedule. WCT is disputing the claim.
No local firm bears the pain of over-relying on Dubai more than LCL Corporation. The interior fit out (IFO) firm came to see the Middle East as its “engine of growth” so much so it planned to list its West Asian operations on London’s AIMS market. But its fortunes have literally collapsed in tandem with Dubai’s property play.
Although initially cautious, LCL became one of Dubai’s biggest IFOs after clinching major projects such as Burj Dubai Mall and Palm Jumeirah. More than 85 per cent of its order book is from Dubai, but collections have been an issue since the end of last year, CIMB Research noted. Its shares are now trading at about 31 sen.
Analysts say what could be more worrying is the exposure local banks could have to Dubai’s unravelling debts. But those amounts, if any, remain unclear. — Business Times Singapore
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