PNB faces potential delay amid KL118 setback

http://www.theedgemarkets.com/

This article first appeared in The Edge Financial Daily, on September 13, 2016.

KUALA LUMPUR: Permodalan Nasional Bhd (PNB) is facing a setback in the ongoing construction of what would be the tallest building in Southeast Asia, which raises the spectre of possible delay in completion, sources say.

Three sources familiar with the issue separately told The Edge Financial Daily that there were problems with the foundation works, which required rectification works. It is not clear what the problem specifically was or how long the remedial process took.

“The last I heard, a couple of months back, the issue had not been resolved,” said one corporate source on condition of anonymity, adding that issues with piling and foundation works are not unusual in the construction sector.

The setback raises questions on whether the tower, which will have 118 stories and will stand 644m when finished, can meet its targeted completion deadline. Reports said the project is expected to generate over RM6 billion in gross development value over the course of its construction.

Samsung C&T Corporation UEM Construction JV Sdn Bhd, the main contractor for the project, declined to comment and referred queries to PNB Merdeka Ventures, the PNB vehicle through which it owns the entire project.

Calls and texts to PNB chairman Tan Sri Abdul Wahid Omar were unanswered. PNB did not specifically address queries from The Edge Financial Daily on the hiccup, but sent a media statement through PNB Merdeka Ventures to a number of Malaysian media outlets afterwards.

In the statement issued last Friday evening, PNB Merdeka Ventures said the project is progressing within budget, on schedule and on track for completion by 2020.

“To date, the piling and foundation works for the tower and the perimeter diaphragm wall for the main car park have been completed,” said the PNB unit. “Currently, the diaphragm wall work for the car park beneath the linear park is in progress, while the excavation works and the bore piling works at the car park area have been completed at the stages of 25% and 60% respectively.”

“The preparation works for the raft foundation of the iconic tower are proceeding with 30% of the raft reinforcing steel placed to date,” the statement said further. “The next major milestone for the project will be the placement of the concrete for the main tower raft foundation in October 2016.”

According to the statement, the concrete placement will be “one of the largest raft concrete pours in the world, consisting over 18,000 cu m of concrete placed continuously over approximately a 48-hour period.”

While the statement seemed reassuring, it raises questions. The foundation works’ contract was awarded to Pintaras Jaya Bhd in March 2014, according to a Bursa Malaysia filing. The job was worth RM74 million and the targeted completion was about a year, it said at the time.

Notably, the tower project is still listed under ongoing projects on Pintaras Jaya’s website about two and a half years later. It described the contract as foundation works encompassing diaphragm wall, piling and excavation works for the 118-storey tower.

Notably too Pintaras Jaya had seen both revenue and profit fall for the past five consecutive quarters up to the fourth quarter ended June 30, 2016 (4Q16). While it attributed the drop to slower business for both its construction and manufacturing segments, what catches the eye in its Bursa filings is reference to “unexpected” additional costs on a “particular completed project” for its review of 3Q16 and 4Q16 earnings.

It is unclear whether this project is the KL118 tower job. Pintaras Jaya did not specify in its Bursa filings how much the additional costs were.

When contacted, Pintaras Jaya declined to comment.

In any case, the rectification works, if true, will be added cost to the project. The question will be who will bear the additional costs, which sources say will likely depend on where the flaw came from. “Someone will have to pay for it,” said a source, “whether PNB, the contractor or someone else.”

To be fair, in the larger picture the added costs from this setback may be a relatively small sum compared to the overall project cost. Last November, PNB president and group chief executive Tan Sri Hamad Kama Piah Che Othman was quoted as saying that the main contract was worth about RM3.4 billion in total.

That contract was awarded to Samsung C&T Corporation UEM Construction JV Sdn Bhd, a 60:40 joint venture vehicle of South Korea’s Samsung C&T Corp and UEM Group Bhd.

A statement on Samsung C&T’s website last October said its share of the contract is worth US$505 million (RM2.06 billion at current exchange rate). Reports said the consortium edged out five other contenders for the job, all consortiums comprising local players partnering a foreign entity.

Samsung C&T boasts a track record of building notable skyscrapers, a list that includes Burj Khalifa, the world’s tallest building at 828m, and Malaysia’s own Petronas Twin Towers that stands 452m.

Nestled in a 7.6ha site next to Stadium Merdeka and Stadium Negara, the tower will also be the third tallest building in the world upon completion. However, a number of mega-tall skyscrapers are either being proposed or have begun construction across Asia and the Middle East, at least three of which would be taller than the Burj Khalifa if completed.

The KL118 tower is designed by Australian architecture firm Fender Katsalidis Architects, noted for its masculine and sculptural style. Turner International LLC is the consultant.

Apart from 118 floors, the Samsung C&T statement also said the tower will have five underground levels. Its total floor area will be 670,000 sq m, and reports said it will also be connected to a mass rapid transit station.