AmWatch - Sime Darby : Closing another chapter on Bakun BUY, 13 Aug 2014

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Sime Darby : Closing another chapter on Bakun BUY

Sime Darby has inked a supplemental deal to the original JV agreement (dated 12 June 2002) with all its JV partners in the construction of the Bakun hydroelectric project in Sarawak. Sime Engineering’s JV partners in the project were Sinohydro Corporation, WCT Bhd, MTD Capital Bhd, Edward & Sons (EM) Sdn Bhd, Ahmad Zaki Resources Bhd and Syarikat Ismail Ibrahim Sdn Bhd.

Sime Engineering has also entered into a settlement agreement with Sinohydro, WCT and MTD, whereupon all parties agree to bear all costs in relation to their pre-existing and future rights, obligations and liabilities in accordance with the agreed proportions. Sime Darby has an effective stake of 35.7% in the JV. The ~RM3bil civil works was completed in late-2011 and commissioned in 2012 at a massive cost overrun, vis-a-vis the original cost estimate of RM1.8bil.

Apart from effectively agreeing to stop all claims against one another, we believe this latest development with the parties reaffirming their respective interests may be a precursor to the compensation due from Sarawak Hydro Sdn Bhd. While the total claim approved, if any, could be much less, this is still a positive with no overhanging claims among the JV partners. Sime Darby had already provided for ~RM600mil losses in the engineering division in the previous years.

Pertinently in relation to the Bakun project, Sime Darby stated it would enforce the judgment only after the JV had received all that is due as full settlement from Sarawak Hidro and/or the Finance Ministry, or after three years from the final judgment date, whichever is earlier. We maintain our numbers and our BUY call, with a fair value of RM11.20/share – a 10% discount to our SOP value of RM12.45/share.

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