TOLL concessionaires got here to focus this week as Amanat Lebuhraya Rakyat Bhd (ALR) prolonged a conditional supply to accumulate 4 city toll highways in what was seen as a win-win-win state of affairs for all involved.
The triple win time period was coined close to a sound deal whereby everybody advantages.
On this case, the beneficiaries embrace the prevailing toll operators, as they stand to obtain some RM5.48bil in complete money, comprising RM3.42bil in fairness worth and RM2.06bil for the debt portion based mostly on info offered by ALR.
The 2 greatest gainers from this deal are in fact Gamuda Bhd and Lingkaran Trans Kota Holdings Bhd (Litrak), as the previous will obtain some RM2.33bil for its fairness share within the toll highways and understand a achieve of RM1bil.
For Litrak, in the meantime, the fairness worth for its toll highways is estimated at RM2.7bil, translating to an implied fairness worth of RM5.06 per share as the corporate will acknowledge a achieve of RM1.38bil in complete.
The second beneficiaries of the freeway deal are the toll customers, as the present toll price of the 4 highways will likely be maintained all through the concession interval and thus saving the freeway customers some RM5.27bil in complete future funds.
By the identical token, the third beneficiary is the federal government as the federal government will likely be relieved of any type of compensation to be paid to the toll operators sooner or later, and web of the long run tax forgone, it’s stated that the federal government will avoid wasting RM4.3bil.
The federal government additionally advantages from this deal because the monies put aside for toll subsidies can now be used for different extra essential expenditures, be it within the type of improvement or different types of social help.
Is the ALR supply completely different?
In essence, the ALR deal is sweeter than the one which was offered by the Pakatan Harapan authorities when the identical deal was priced then at RM6.2bil.
The present deal by ALR is at a RM720mil low cost or 11.6% cheaper than the 2019 proposal.
Based on Gamuda, the distinction is especially because of the time issue as ALR’s supply is dated two years after the earlier supply and therefore the cashflow from the highways for the 2 years has now been excluded, as it’s realised cashflow.
In any case, each the present and former gives used the identical discounted money movement (DCF) methodology.
Within the 2019 proposal, the federal government supposed to de-toll the highways with three staggered charges, inclusive of a toll-free journey interval between 11pm and 5am day by day.
The proposal then additionally included a 30% low cost at off-peak hours and freeway customers have been anticipated to pay a congestion cost equal to the present toll price for journey instances throughout six-hour peak intervals.
The ALR deal is easy, there isn’t a tiered pricing however just one toll price that may stay stagant till the concession ends.
The earlier deal was in fact a government-backed deal while the present supply by ALR is a non-public incentive.
Therefore, in contrast to the earlier deal, which might have burdened the federal government with extra money owed, this deal is an easy personal transaction and doesn’t burden the federal government within the type of contemporary borrowings.
Is RM5.48bil a good worth?
There are various methods to have a look at this, be it on a price-to-book foundation, price-to-earnings (PER), substitute price of the highways, or based mostly on the DCF technique, which is one of the best ways to worth toll operators.
However as DCF is topic to many assumptions, particularly the low cost price for use in addition to site visitors assumptions, nobody company finance particular person can have the identical reply to the worth of a venture or a concession.
Therefore, available in the market’s reception of ALR, though cheaper than the earlier government-backed proposal by RM720mil, the query of whether or not it is a honest worth stays.
Determine 1 summarizes the present web ebook worth of the highways, the income in addition to earnings as extracted from Gamuda’s newest annual report.
It may be stated that total, the ALR supply appears “honest and affordable”. It appears to have matched what most analysts have tagged because the honest worth for these belongings.
Nonetheless, there may be some aspect of overpayment, particularly for Sistem Penyuraian Trafik KL Barat Sdn Bhd or Dash belongings, which works out at about 3.2 instances ebook worth. As an entire, ALR is paying roughly 1.8 instances ebook worth and at about 13.5 instances historic PER.
The premium ALR is paying to accumulate the toll concessionaires is roughly RM2bil towards RM2.82bil beneath the earlier Pakatan Harapan proposal.
Christmas comes early
For the concession holders, it is a windfall achieve of RM2bil and successfully taking all their future earnings upfront, with out having to function the belongings over the remaining concession intervals, and the perfect half, tax-free, as there isn’t a capital positive aspects tax in Malaysia .
For instance, based on Gamuda, the corporate will forgo a future revenue of roughly RM170mil from its toll concession enterprise, which is subjected to tax, however on the similar time generate a one-time extraordinary achieve of RM1bil upfront, untaxed.
In essence, the worth of the upfront realized achieve is equal to virtually six years of future earnings. The identical goes for Litrak, the listed firm, the place it’ll understand a achieve of roughly RM1.38bil for the RM2.7bil fairness worth that’s hooked up to the freeway concession it owns.
The unknown elements
ALR is a not-for-profit particular function car, and in impact, all money flows generated from the working of the highways will likely be used to pay the RM5.5bil sukuk that ALR intends to situation.
In a 100% debt-funded deal, the aspect of certainty within the money movement is essential, because the issuer has to make sure that it has ample money movement generated from the concession to pay revenue funds and to construct up the redemption sum for the complete compensation of the sukuk papers once they mature.
As ALR will not be a government-backed entity, nor has it obtained a letter of help from the federal government for the sukuk issuance, there isn’t a assure of revenue funds or redemption of the sukuk papers when they’re due.
Therefore, the revenue price for the sukuk will probably be priced accordingly and will likely be nearer to the present charges that the toll concessionaires are priced immediately.
One other level to make is with respect to the toll concession interval. Determine 2 summarizes the present concession interval and the brand new concession interval along with the utmost concession interval beneath the ALR proposal.
Whereas there’s a likelihood that a few of the concessions could finish earlier in 2032 than their authentic finish date, particularly for Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd or Good and the Damansara and Kerinchi Hyperlink, the brand new end-period concession within the 12 months 2032 is longer for each the Kesas and Litrak’s toll highways, which had an authentic concession finish interval of 2028 and 2030, respectively.
As well as, as ALR will restructure the sukuk papers to match the brand new concession interval, there may be additionally an extra most interval of the concession, which extends by between one other six and 16 years!
In impact, the utmost interval of the concession is now between six and 10 years longer than the unique concession interval.
Whereas motorists save on the present toll price as they are going to be frozen, it comes at a worth and that worth is an extra extension of the concession interval as talked about above. This in essence is the added price to motorists plying the 4 highways.
The hope right here is in fact for ALR to finish the concession as quickly as doable because it builds up the redemption sum and to not lengthen the concession interval past the brand new finish interval in 2032.
The idiom “my phrase is my bond” involves thoughts when this situation as traders will likely be supportive of this ALR proposal if the tolling ends as early as 2032, not a day later.
Pankaj C Kumar is a long-time funding analyst. The views expressed listed below are the author’s personal.