PETALING JAYA: Pestech International Bhd has denied that its subsidiary, Pestech Technology Sdn Bhd (PTech), is insolvent, following its termination as a sub-contractor for the Gemas-Johor Bahru electrified double-track rail project, for which completion has been delayed since April 2021.
PTech was terminated as a sub-contractor for the project by main contractor Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (SPYTL), the construction arm of the YTL Group, allegedly because it was insolvent, among other issues.
“PTech is not insolvent but rather the project was going through a serious negative cashflow issue created by SPYTL,” said Pestech International in a filing with Bursa Malaysia yesterday, replying to queries raised by Bursa Malaysia Securities Bhd (Bursa Securities).
It added the negative cashflow issue was due to a rear loaded project payment milestone, a delay of SPYTL’s works that caused more than two years’ extension of time for the project during which PTech received no loss or expense payments for the contract prolongation.
PTech also categorically denied the allegation that it had repudiated the contract or demobilised from the project site. “PTech slowed down on the works due to negative cashflow of the project but works were ongoing,” the filing said.
SPYTL issued the termination notice to PTech on May 10. On the same day, it asked SPYTL for a reconsideration of the termination, resulting in SPYTL agreeing to allow PTech to submit a mitigation plan against the termination.
PTech initiates legal action
In a turn of events, SPYTL unexpectedly called for the activation of PTech’s performance bond on June 9. As a result, PTech initiated legal action against what it perceived as an “unjust termination”.
Its lawyer applied for an injunction against the “unlawful demand” made against PTech’s performance bond by SPYTL. PTech was awarded an ex-parte injunction on June 13 and the process to get a permanent injunction is ongoing, Pestech International said.
Shortly after, PTech requested for the dispute resolution management committee meeting to be convened. However, it claimed SPYTL delayed the meeting to June 27, initially to take place on June 19.
On June 27, PTech concluded that further negotiations and mediation would be futile, leading to an announcement to Bursa Securities that legal action in the form of an injunction had been taken against SPYTL due to their unauthorised use, interference, and manipulation of machinery belonging to a Pestech International subsidiary.
The group stated the conclusion of the project and subsequent legal proceedings will not significantly impact its revenue and earnings for the fiscal year ending June 30 (FY2023).
Nonetheless, Pestech International acknowledged there will be an effect on its revenue and earnings for the following fiscal year (FY2024), without providing specific details.
With a fixed sub-contract price of RM399 million, the project was awarded in September 2018 to PTech by SPYTL under the SIPP-YTL JV – a consortium between SIPP Rail Sdn Bhd and SPYTL.
It was to provide turnkey engineering, procurement, construction and maintenance services relating to the electrification system for the 197km electrified double-track from Gemas to Johor Bahru. The contract work was initially scheduled to be completed in April 2021.
PTech had completed about 70% of the project, resulting in an outstanding contract balance of roughly RM140 million, including unclaimed works worth approximately RM29 million. Meanwhile, the projected cost for the remaining work is estimated to range from RM45 million to RM55 million.
Pestech International’s shares were unchanged at 20 sen at the close, giving it a market capitalisation of RM193.48 million.