Published June 12, 2009

M'sian builders embroiled in suits in Dubai, Qatar

Big bets on property boom in Middle East run into roadblock

By S JAYASANKARAN
IN KUALA LUMPUR

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AT least two Malaysian companies have run into trouble over construction projects in the Middle East, highlighting the pitfalls of doing business in unfamiliar business conditions.

In January, shares of listed engineering firm WCT plunged to their lowest level in 14 years after a US$1.3 billion racetrack in Dubai was cancelled despite the Malaysian company having completed 60 per cent of the work.

In February, WCT together with its joint-venture partner instituted a civil suit against Meydan, the promoter of the racetrack, that will be heard by an arbitration panel in Dubai later this year.

Meanwhile, state-owned UEM Group has been slapped with a RM850 million (S$353 million) suit by the Qatar government over alleged contractual breaches in the building of a highway through the sheikhdom's capital, Doha. The road contract was awarded in 2001 on condition that it be completed before the Asian Games in 2006.

In actual fact, Qatar sued Parsons International Ltd, the engineering firm which designed the road, for alleged design flaws but named UEM, the main contractor, as the second defendant to the suit.

According to other unconfirmed reports, the Qatar government may have also frozen UEM's assets in the emirate. UEM is the former Renong group, that was bailed out in 1999 after the government took it private.

On Wednesday, UEM chairman Ahmad Tajuddin Ali confirmed the suit. 'We are just the contractor,' he told reporters. 'It is the consultant that has been sued but we are named as second defendants.'

According to executives familiar with the suit, UEM has put in a counter-claim because it hasn't been paid for work done over four years ago, but the amount it claims couldn't be immediately confirmed.

Mr Tajuddin did not allude to this beyond saying: 'We will manage the case. We have a strong case to defend ourselves.'

After the Asian financial crisis of 1998, many Malaysian construction companies flocked overseas for jobs because of a construction slump in Malaysia. After Abdullah Ahmad Badawi became prime minister in 2003, the slump was exacerbated because the new premier immediately cancelled big-ticket infrastructure projects to reduce a yawning budget deficit.

This coincided with a boom in the Middle East especially in the Gulf states which, flush with oil money, embarked on a building boom. Malaysian companies also headed there figuring, probably correctly, that they would stand a better chance given that they hailed from a Muslim-majority country.

WCT's lawsuit, in particular, epitomises the pitfalls of betting on what many economists are now describing as the property bubbles of the Middle East. In addition, UEM's and WCT's problems could be symptomatic of the woes of other Malaysian companies that bet heavily on the Middle East boom. But they may not have emerged because many of them are private, unlisted firms and so do not have to declare their woes publicly.