PETALING JAYA: The Selangor government is unlikely to revise its offer to take over Syarikat Pengeluar Air Selangor Sdn Bhd (Splash) on the premise that it would be unfair to the other concessionaires who had already accepted the state’s offer.
According to Azrul Azwar, a special functions officer for Selangor Mentri Besar Tan Sri Khalid Ibrahim, the offer of a non-compounded interest of 12% per annum to Splash was “decent” enough.
“In all likelihood, the state is unable to agree to Splash’s preferred valuation methodology, as it would be unfair to the other water concession companies, all of which have accepted offers that are based on a return on equity (ROE) of 12% per year.
“By any measure, this offer would provide a decent return, and compared with the prevailing fixed deposit rates of 3% per year, a return of 12% would appear to be very lucrative indeed,” he said in a report explaining the valuation of the latest water assets takeover by the Selangor state government in February.
Khalid and Energy, Green Technology and Water Minister Datuk Seri Dr Maximus J Ongkili in a joint-statement in May had agreed to re-examine the payment for bulk water supply for Splash in arriving at a win-win solution.
Splash, which is 30%-owned by The Sweet Water Alliance Sdn Bhd (TSWA) and 30% by Kumpulan Darul Ehsan Bhd (KDEB), is the only remaining Selangor water concessionaire that has not accepted the offer by the state government. Gamuda Bhd, which owns the remaining 40% stake in Splash, claimed the net offer of RM250.6mil for Splash when compared with the net asset value (NAV) of Splash amounting to RM2.54bil, would result in a staggering divestment loss of RM920mil to Gamuda. In addition, the net offer price was below 10% of Splash’s NAV.
The offer to Splash also incorporates water-related liabilities under Splash, which had amounted to a total of RM1.58bil as at Dec 31, 2012.
In the report, Azrul explained why the state thought the offer was fair. He said:
● The equity portion in the offer from KDEB is valued at RM250.6mil by applying a non-compounding 12% ROE invested up to Dec 31, 2012 and after the deduction of RM725.4mil in historical dividend payouts;
● Splash shareholders have invested a total of RM400mil in equity capital via RM50mil ordinary shares and RM350mil in redeemable preference shares;
● Applying a non-compounded return of 12% per annum on the RM400mil invested by Splash shareholders for the 12 years since the start of the concession in 2000 would result in a total return of RM576mil, which means a total payback of RM976mil, after including the initial investment RM400mil; and
● The historical dividends of RM725.4mil paid until the end of 2012 was not only sufficient for Splash shareholders to recover their initial RM400mil, but also left them with a return of RM325.4mil, almost doubling their investment within a period of 12 years.
Azrul also said that Splash had been enjoying lucrative returns and synergistic benefits from the concession. For the financial year ended March 31, 2013, Splash posted a profit of RM382mil, translating into a pre-tax profit margin of 93.47%.
“Apart from the direct investment returns enjoyed by the shareholders of Splash, there have been and continue to be other indirect returns derived from the synergistic benefits of the shareholders’ related group of companies and associate companies. For example, as part of the privatisation, Splash had signed a contract with Gamuda Water Sdn Bhd on Jan 24, 2000 for the operation and maintenance (O&M) of Sungai Selangor Phase 3. Gamuda Water is 80%-owned by Gamuda and 20%-owned by a party reputedly related to TSWA.
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