AS the West Coast Expressway inches closer to opening, at least parts of it, the listed company behind it will once again get back on investors’ radar.
But it is not a bed of roses.
There is a cash call in the works as well as a significant amount of debt for WCE Holdings Bhd to deal with.
That said, WCE still stands out as one of the more interesting toll road operators among the group of listed companies involved in the business.
For one, it does not have any bond holders to contend with.
Secondly, recall that WCE had been given a preferential rate and assistance on its fundraising by the government as a means to incentivise it to build the West Coast Expressway.
As it stands now, WCE has RM2.8bil of loans and borrowings on its books.
Of this, RM2.24bil is owed to the government, which was at a preferential interest rate of 4% per annum.
The other balance of an estimated RM640mil is debt taken from commercial banks.
But even in that scenario, there is a buffer from the government, in the form of an interest subsidy of up to 3% from commercial loans over a period of 22 years.
To recap, the West Coast Expressway spans 233km from Banting, Selangor to Taiping, Perak.
It is the third longest alignment in Peninsular Malaysia, following the 966km North-South Expressway and 330km East Coast Highway.
The West Coast Expressway has a total of 21 exchanges and is linked to existing highways such as North-South Expressway, North Klang Valley Expressway (NKVE), South Klang Valley Expressway (SKVE) and Shah Alam Expressway.
It is seen as a strategic highway to open up coastal towns, being an economic catalyst as it provides more job opportunities and boost tourism in Perak. The highway is expected to be completed in 2022, delayed by two years from the initial deadline of April 2020.
According to WCE’s annual report 2018, the West Coast Expressway will be equipped with full radio-frequency identification or RFID-based toll collection system, though Smart Tag and Touch ‘n Go card usage will still be catered for.
Sectional tolling involving packages four and five in Selangor and packages eight and nine in Perak are expected to commence in the first quarter of 2019.
From day one, building the expressway had its challenges.
There were soft-soil conditions along the coastal stretches and an elevated section in Selangor, which took additional time to sort out the issues.
Apart from that, there were land acquisitions to be made, which were dragged on due to disagreements and changes made in the alignment to section seven in Tanjung Karang, Selangor.
Hence, this is why only five interchanges on the West Coast Expressway will be opened to road users in time for Hari Raya Aidilfitri.
To date, 60% of the expressway has been completed. It was reported that the opening of the five interchanges, which makes up some 70km of the West Coast Expressway, are subject to approval from the federal government.
West Coast Expressway Sdn Bhd managing director Datuk Neoh Soon Hiong said motorists using the expressway will be able to connect to the North Klang Valley Expressway and access Kapar in Selangor as well as Teluk Intan, Hutan Melintang and Beruas in Perak.
Concessionaire holder West Coast Expressway Sdn Bhd is an 80%-owned subsidiary of WCE.
WCE’s largest shareholder is IJM Corp Bhd with 26.45% equity.
This is followed by privatised MWE Holdings Bhd, which owns an estimated 26% equity in WCE.
MWE is controlled by low-profile tycoon Tan Sri Surin Upatkoon.
Back in 1995, the West Coast Expressway was first mooted by Konsortium LPB Sdn Bhd (KLPB) founder Tan Sri Chan Ah Chye.
KLPB, presently known as West Coast Expressway Sdn Bhd, was the promoter of the highway.
The project was awarded to KLPB in 1996 but was shelved in 1997 due to the Asian Financial Crisis. It was revived in October 2002 with targeted completion in 2005.
However, the project ran into further delays due to funding issues and shareholder changes.
KLPB’s Chan and IJM Corp substantially controlled Kumpulan Europlus Bhd (KEuro), which is known as WCE Holdings Bhd.
After further discussions and a slew of boardroom changes in KEuro, the expressway deal was finalised and sealed at the end of 2011, with the government giving the official green light at the beginning of 2012.
In 2013, Chan sold a 22.15% stake in KEuro to Surin for RM155mil.
Construction works for the expressway finally began in 2014 at a finalised cost of RM5.04bil with land acquisition costs at RM980mil.
The West Coast Expressway is a build-operate-transfer project with a concession period of 50 years, with an option to extend by an additional 10 years.
WCE shares have been actively traded of late, with its two-year descending trend coming to a halt at the beginning of 2019 to a sideways trading direction.
On a year-to-date basis, the stock has risen 21% to 60.5 sen as of yesterday’s close.
But shareholders should be aware of the impending cash call.
Last November, WCE had proposed for a renounceable rights issue of five-year, zero coupon redeemable convertible unsecured loan stocks (RCULS) to be issued at 50 sen each together with free detachable warrants, on the basis of five RCULS for every six existing shares in WCE and one warrant for every three RCULS subscribed for.
The total estimated proceeds raised from this exercise amounting to RM485mil is earmarked for equity or convertibles injection in WCE as part of its equity contribution to the project cost funding, repayment of bridging loan, general working capital, as well as estimated expenses in relation to the rights issue.
Another possible reason for the interest in WCE would be the recent announcement by the government that it would buy out toll operators.
Although WCE was not mentioned in that context, as the government is more focused on intra-city tolls which are mostly unavoidable, industry sources say WCE is an ideal candidate to be potentially bought out by the government.
This is because the West Coast Expressway is a new highway that has yet to commence concession, and is relatively cheap.
WCE registered a net profit of RM21.71mil for the first nine months of the financial year ended March 31, 2019, on the back of a revenue of RM493.07mil.
As of Dec 31, 2018, WCE has cash and cash equivalents amounting to RM1.099bil.