TAN Sri Halim Saad may be his own worst enemy in trying to get government support in his attempt to buy highway operator PLUS Malaysia Bhd. This is the general perception considering the cool reception to his fresh offer for PLUS last week.
This is his second attempt at gaining control of the highway concessionaires in four years.
Sources said the unsolicited offer, which was submitted to the Government last week, did not get the endorsement of the Economic Council.
It was also quite clear that the current owners – UEM Group Bhd and the Employees Provident Fund – have no plans to part with their prized asset.
Last Tuesday StarBiz reported that Halim had put in a fresh offer for PLUS with a seven-page concept paper outlining his plans.
The concept paper entitled Rakyat-Friendly Tolled Road Scheme dated March 17 was submitted by Halim’s private vehicle Idaman Saga Sdn Bhd, prepared by PwC Capital, for the Economic Council.
In the paper, Halim said he would maintain toll rates at current levels and offer discount cards to urban highway commuters as sweeteners to convince the public.
He also planned to waive compensation from the Government for deferred future rate hikes.
A group of businessman announced on Wednesday that the proposal would benefit highway users.
But Halim’s proposal lacks the financial details, including the offer price, as to how he intends to pay for PLUS. Halim is asking the Government for consent to do a due diligence on the highway concessionaire.
Sources said the bare bones details provided by Halim in the concept paper were met with scepticism about the viability of his offer and for them to be considered a serious bid.
But all things aside, Halim’s latest offer did strike a chord with the public.
His promise to maintain toll rates at current levels for the next 24 years drew immediate support from Malaysian Malay Businessmen and Industrialists Association.
PLUS owns the most lucrative highway concession in the country – the 772km North-South Expressway that forms the backbone of the country’s road network.
The company currently operates seven highway concessions with 986km of tolled road.
A credit analysis by Malaysia Rating Corp Bhd (MARC) obtained by StarBizWeek gave an insight into PLUS financial health. The firm has AAA rating on PLUS sukuk issue.
Toll revenue in 2012 stood at RM3.04bil and was projected to grow to RM3.38bil in 2014. By 2015, it was estimated to reach RM3.56bil and hit a stagerring RM4.93bil in 2021.
The growth was based on the assumption that traffic volume on the highways would continue to increase every year at a steady 2% pace. PLUS is due for a 5% toll hike in 2016 and every three year thereafter until the concession ends on Dec 31, 2038.
It is likely that PLUS will be compensated if the scheduled rate hikes are put off by the Government. The company had not been able to increase toll charges since 2005.
That had somewhat hindered its financial performance.
The bulk of the money collected at the toll booths goes towards servicing PLUS massive debts of RM30.6bil, while a significant chunk would need to be set aside for operating expenses and maintenance.
Audited figures showed that the company made a RM5mil loss before tax in 2012.
However, PLUS registered an operating profit before interest and tax of RM1.48bil in 2012, indicating strong cash-flow.
It is estimated that PLUS will spend about RM700mil a year for operating expenses, which implies a cost of RM710,000 per km.
The cost is expected grow at modest rate of 2% a year.
PLUS also allocates about RM100mil a year for capital expenses.
It is worth to note that urban highways operators like KESAS or LDP need an average of about RM1.15mil per km for operating expenses, including maintenance.
The higher sum is due to the fact that urban highways typically experience high traffic volume that put a huge strain on the road pavement.
But looking at its bottomline alone does not provide a complete picture of PLUS.
Analysts say the company is an attractive takeover target with its huge cash generating business and steady growth potential.
Halim would have certainly put in a lot of thought into his latest offer after his first attempt in 2010 to acquire the assets and liabilities of PLUS Expressway Bhd (PEB), as the company was known back then, for RM26bil through Jelas Ulung Sdn Bhd, was brushed off by PEB’s controlling shareholders.
At that time, Jelas Ulung failed to convince shareholders in PEB that it had the financial muscle to complete the deal.
The UEM-EPF joint venture, which made the earlier offer to privatise PEB for RM23bil, later proceed with its acquisition and delisted the stock from Bursa Malaysia in 2012.
Since PLUS is now in the hands of government-linked companies, it made a lot of sense for Halim to go through government channels to launch his second bid for the company.
After his first failed attempt, he would have certainly been more prepared.
It was believed that Halim had roped in Lembaga Tabung Haji to back his bid this time around. That should give Halim the local financial muscle that was lacking in his first bid.
Taking over PLUS is certainly going to be a complicated, delicate and expensive affair.
And if the current water consolidation saga in Selangor is anything to go by, Halim really has to come out with a more convincing offer.