PETALING JAYA: The government is expected to acquire more toll highways in the future, especially those with matured traffic flows and shorter remaining concession years, according to a research house.
UOBKayHian said this was because the takeover bid price and interest expense would be slightly lower compared to those with longer remaining concession years.
“We can expect more toll acquisitions to occur in the near term as the government has highlighted that it would use a similar model (to that of the Gamuda and Lingkaran Trans Kota Holdings Bhd (Litrak) toll highways) to acquire the concessions of other toll highways in the future, including inter-city highways,” it said in a report.
The research house pointed out that among inter-city toll highways with matured traffic and short remaining concession years are the New Pantai Expressway (NPE) which matures in 2030, the Ampang-Kuala Lumpur Elevated Highway (AKLEH) in 2029 and the Guthrie Corridor Expressway in 2036.
As of November last year, there were two concessions that end in 10 years, 16 other concessions between 11 and 20 years and 11 others beyond the next 20 years.
“Interestingly, some industry observers do not expect such an acquisition model to materialise for long remaining concession years, as the bid price is much higher for the government.
“They are also saying that the government may potentially save its operation and maintenance (O&M) costs via the removal of toll booths and other means of cost optimisation for its O&M,” said UOBKayHian.
The NPE is owned and maintained by New Pantai Expressway Sdn Bhd, a subsidiary of IJM Corp Bhd, while AKLEH and the Guthrie Corridor Expressway come under Projek Lintasan Kota Holdings Sdn Bhd (Prolintas), which is wholly owned by Permodalan Nasional Bhd (PNB).
IJM Corp dipped 2.07% to close at RM2.36 with 7.21 million shares being traded yesterday.
On Saturday, Finance Minister Lim Guan Eng announced that the government had made a RM6.2bil bid to take over four concessions of toll highways, which could save taxpayers RM5.3bil in compensation to the concessionaires.
The four highways are Lebuhraya Damansara-Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Shah Alam Expressway (Kesas) and Smart Tunnel (Smart).
GAMUDA BHD has a significant stake in all four highways, while the concessionaire for LDP is Litrak. Gamuda owns a 43.6% stake in Litrak, a 50% stake in Sprint, a 70% stake in Kesas and a 50% stake in Smart.
The takeover of the toll highways would be financed through a special-purpose vehicle under the Minister of Finance Inc, a corporate body under the Finance Ministry (MoF).
There will be flexible congestion charges during peak hours, which will be capped to the present toll rates once the government takes over the concession.
But it is yet to be ascertained if the proposed takeover would go through, as the matter will only be decided by the Cabinet after taking into account the studies and suggestions from the Works Ministry.
On the same day following Lim’s announcement, Works Minister Baru Bian said the report would only be presented to the Cabinet next month, among which were to suggest reasonable options that could be accepted by all stakeholders to minimise the financial burden of the government and ensure that the operations and maintenance standards of the highways are not affected.
Shareholders in Gamuda and Litrak seem to have differing opinions on the proposed acquisition of the toll highways by the government. Litrak was the second top gainer on Bursa Malaysia yesterday, rising 16.63% to RM4.91, its highest since Sept 7 last year, with 3.71 million shares being done.
Gamuda emerged as the fifth top loser on the local bourse after dipping 6.79% to RM3.57 with 33.62 million shares being traded.
The LDP received the highest offer at RM2.47bil, followed by Sprint at RM1.98bil, Kesas at RM1.38bil and Smart at RM369mil.
Kumpulan Perangsang Selangor Bhd (KPS) managing director and group CEO Ahmad Fariz Hassan said the proposed acquisition of Sprint was a positive development and a profitable divestment.
“Monetising the non-core asset would position us a step closer to moving in the intended direction and ensuring the strategic business alignment at the group level,” he said.
KPS owns 20% in Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd.
Meanwhile, RHB Research Institute said the government’s move to acquire four toll highways has been deemed positive for all stakeholders, as it fairly compensates the concessionaires and will inevitably lead to long-term savings for the country.
Its report yesterday stated that the offer is well-balanced and not too burdensome to the government’s financial position.
“Indirect stakeholders, being the one million daily road users, in our estimate, comprising 48% of urban toll-road users, would benefit from a lower cost of transportation (RM180mil savings annually estimated by the MoF).
“Capital market participants, meanwhile, could benefit from improved market confidence through a display of market integrity, namely, the safeguarding of contractual obligations between the government and the private sector.”
The research house added that the deal would lead to long-term savings for the government despite incurring more debt.
“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 and maintenance costs. Politically, the government will move forward in fulfilling one of its election promises.”
In an environment of tapering traffic growth as a result of new public transportation, Maybank Investment Bank Research said the MoF’s cash offer represented an attractive exit option for Litrak.
“We believe the LDP and Sprint concessions are unlikely to be extended beyond August 2030 (for LDP) and December 2034 (for Sprint), capping the upside to valuations. We had previously accorded a 20% discount to our discounted cash-flow valuations, imputing uncertainty of the takeover.”
Gamuda received an offer from the MoF to acquire its toll highway stakes for an equity value of RM2.36bil. Affin Hwang Capital said the offer price was 16% below its discounted cash-flow valuation of RM2.8bil.
“We were surprised by the low valuation of Kesas and Smart. However, we understand that the offer price is within Gamuda’s internal valuation and hence the offer would likely be accepted.
“Assuming the offer is accepted by Gamuda and the deal is completed by the Dec 31, 2019 deadline, we cut our core earnings per share by 16% to 28% in 2020 and 2021, reflecting the loss in toll highway earnings contribution post-disposal, partly offset by interest income on the RM2.36bil cash proceeds.”
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