RHB Research positive on MoF’s RM6.2b takeover offer for highways


  • highways
  • Monday, 24 Jun 2019

KUALA LUMPUR: RHB Research Institute is positive on the Ministry of Finance’s (MoF) RM6.2bil offer to buy out four tolled highways after four months of negotiations.

The highways are Lebuhraya Damansara Puchong (LDP), Sistem Penyuraian Trafik KL Barat (SPRINT), Lebuhraya Shah Alam (KESAS) and SMART Tunnel (SMART). 

Subject to due diligence and shareholder/credit holder approvals, the MoF intends to issue bonds to acquire these assets by end-2019 under a SPV. Thereafter, the MoF will implement a new toll structure on Jan 1, 2020.

“For direct stakeholders, ie the seller and buyer, we opine that the offer is well-balanced, as it fairly compensates toll concessionaires, whilst being not too burdensome to the Government’s financial position. 

“Indirect stakeholders, being one million daily road users, in our estimate, comprising 48% of urban toll-road users will benefit from a lower cost of transportation (RM180mil savings annually estimated by MoF). 

“Capital market participants, meanwhile, could benefit from improved market confidence through a display of market integrity, ie the safeguarding of contractual obligations between the Government and private sector,” it said.

RHB Research said ss a basis for valuation, it believes that the DCF methodology was likely used for profit-making LDP, SPRINT and Kesas, while the construction cost/book value could have been used for loss-making SMART. 

In its estimate, elements such as the remaining concession period, future toll-rate hikes per concession agreements (CA) and potential growth in average daily traffic (ADT) volumes are likely accounted for – resulting in a positive trade-off of future profits for an upfront payment consideration. 

“The equity sale value of RM4.5bil is higher than the book values for the assets, and translates to a P/E of 13.2 times annual net profit. 

“Crucially, the government did not resort to exercising its expropriation clause resulting in a low offer, which would have been a negative outcome.

“The Government stands to save RM5.2bil in compensation payments for absorbing the cost of deferring toll rate hikes for the remainder of the concession periods. 

“In addition, a soon-to-be implemented congestion charge acts as a sustainable source of funding for bond financing and operations & maintenance (O&M) costs. Politically, the Government will move forward in fulfilling one of its election promises.

“A blueprint for future transactions. In our view, the offer made by the Government could be used as a precedent for future transactions pertaining to concession assets. 

“Valuation discounts placed by investors to account for the risk of an expropriation exercise carried out by the Government would gradually narrow as uncertainties are lifted,” RHB Research said.

highways , bonds , toll structure

   

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