MORE restructuring of freeway operators is probably going following the proposed takeover of 4 freeway concessionaires linked to Gamuda Bhd
by Amanat Lebuhraya Rakyat Bhd (ALR).
ALR is a personal and not-for-profit firm, carrying the mandate of the federal government in a proposed restructuring of sure tolled freeway concessions.
It’s utilizing a freeway belief mannequin which was first mooted a couple of yr in the past largely to beat the resistance to toll hikes. Seen as a extra capital market-friendly possibility, its success may present a blueprint for the renegotiations of different freeway operators.
Credit score Suisse Fairness Analysis says the proposal is possible for different listed city tollways which can be already operational. In addition to Gamuda and its 43.16%-owned Lingkaran Trans Kota Holdings Bhd (Litrak), the opposite corporations which have stakes in highways are IJM Corp BhdWCE Holdings BhdEkovest BhdAhmad Zaki Sources Bhd and Taliworks Corp Bhd,
Inside its protection, the analysis agency says that the tollway property of IJM Corp are price about RM3.3bil, which is price about half the inventory’s market capitalisation.
Nevertheless, what about PLUS Malaysia Bhd – the nation’s largest freeway concessionaire?
This may very well be a bit extra tough and infrequently “politically charged.”
PLUS is 51% owned by UEM Group Bhd, which in flip is a unit of the federal government’s sovereign wealth fund, Khazanah Nasional.
The Workers Provident Fund (EPF) holds the rest 49%. Because the fund has greater than 14 million members, they’re oblique house owners of the freeway operator too, whose property embody the North-South Expressway (NSE).
Discuss of a PLUS restructuring has been ongoing for a while with combined views on who or how one can greatest handle it.
Ever because it was taken personal in 2012 by the federal government and the EPF, there have been quite a few bids by a number of people (by way of their respective automobiles) to purchase over the asset from the current shareholders.
Round 2017 to 2019, the federal government indicated its intention to promote PLUS as a part of a plan to scale back toll prices and ease the monetary burden of toll customers.
4 formal presents had been acquired in what would have been company Malaysia’s largest deal because the takeover of PLUS was valued at greater than RM30bil.
One provide got here from Tan Sri Halim Saad, who used to helm the now-defunct Renong group that beforehand owned PLUS.
Nevertheless, the then Pakatan Harapan authorities made an about-turn and selected as an alternative to provide an 18% low cost on PLUS’ toll charges beginning Feb 1, 2020, to be able to preserve the freeway operator within the fingers of the federal government and the EPF. Each events have loved good returns from their acquisition of PLUS.“PLUS is the spine of Malaysian highways and has an excellent monitor report. There may be a whole lot of certainty by way of money stream and even throughout Covid-19, it was capable of pay bondholders however the drop in site visitors,” says one analyst.
Malaysian Score Corp Bhd (MARC) in its newest credit score overview of the group notes that PLUS’ highway networks have traditionally demonstrated very low volatility, with peak-to-trough quantity variance of nearly 2% through the 2016-2019 interval.
“We observe that within the intervals through the pandemic when (motion) restrictions had been lifted or eased, site visitors on PLUS’ roads rebounded strongly near pre-pandemic ranges. Though the timing and form of restoration are nonetheless unsure, we consider site visitors ought to get better progressively in 2022 from the Covid-19 shock in 2020-2021, and count on a full restoration by 2023,” the score company provides in a report launched in late December final yr.
Because of motion restrictions to curb the pandemic, its income for the primary half of 2021 had dropped 14.9% year-on-year to RM1.2bil.
Regardless of this, the score company notes that PLUS has adequate liquidity to handle its debt maturities.
“As at end-June 2021, it had RM2.8bil in money, offering ample cushion in opposition to RM2.1bil of principal and revenue obligations due in 2022,” factors our MARC.
Free money stream, in the meantime, remained constructive at about RM820.3mil within the first half of 2021, supported by lowered capital expenditure (capex). As for routine upkeep capex, it’s anticipated to stay regular at round RM287.5mil for 2022.
Visibility on its free money stream will hinge on the extent the freeway operator can re-profile its capex and dividend payouts.
“We count on PLUS to keep up a passable degree of free money stream by means of prudent monetary administration, significantly with respect to capex and dividend payouts, and keep the finance service cowl ratio throughout the covenanted two instances,’ it provides.
Coming again to ALR’s proposed acquisition of the 4 tolled highways (at an enterprise worth of RM5.48bil), the bottom line is the elimination of the dividend stress.
The extremely profitable dividends that PLUS generates are essential within the dividends the EPF pays its members. PLUS had indicated previously it’ll should be compensated for the lack of the massive quantity of future revenue ought to any privatisation provide be made.
So it stays to be seen if the EPF or Khazanah, which have resisted earlier presents, could be on board with this.
Nevertheless, if the federal government intends to proceed freezing toll hikes, some consider that it may very well be a means ahead. As of end-September 2021, the excellent toll compensation owing to it was stated to be about RM2.5bil.
In accordance with a banker, underneath the belief mannequin, the EPF can proceed to take part within the debt (of PLUS).
“The difficulty is the tiny slither of fairness which entails an enormous revenue,” he provides.
By eradicating the revenue aspect, monies generated, minus the price of upkeep, might be channeled for the servicing and early redemption of its monetary money owed.
“This fashion the concession interval might be shortened,” he says.
Reitrating his stance made in 2019, Datametrics Analysis and Info Middle Sdn Bhd managing director Pankaj C. Kumar, sees no compelling motive for anybody to step in and take over the roles of Khazanah and the EPF.
“PLUS is in good fingers now. Given its dimension, a takeover with out authorities backing or assure can’t be simply executed,” he says.
Hypothetically talking, if in any respect the EPF feels that the timing is correct to monetise its stake in PLUS, he thinks the fund ought to promote that block to Khazanah.
MARC, which affirmed its AAA score on the group’s RM23.35bil sukuk with a secure outlook, highlights two key strengths of PLUS.
One is presence of cross-default provisions in government-guaranteed sukuk. In explaining the rationale, it says that the score continues to include a two-notch score uplift from PLUS’ standalone score of AA, which displays the score company’s evaluation of sturdy authorities linkages.
The second energy of the group is its portfolio of matured toll highway concessions with secure site visitors profiles. In addition to the NSE, which contributes greater than two-thirds to whole toll income, PLUS has six extra expressways underneath its belt.
The concessions finish in December 2038.