IN the developing highway saga, the billion-dollar question is what will happen to PLUS – also known as the North-South Expressway (NSE) – in light of the government’s attempt to abolish toll roads?
PLUS is the national highway spanning 772km, making it the longest expressway in Malaysia. It was built in the late 1980s.
Since 2014, there have been a number of bids to take over the highway, including from the man behind its construction – Tan Sri Halim Saad.
Now, in light of the government’s intention to “de-toll” all highways, proposals to the government are intensifying, industry sources say.
The proposals are offering various methods to help the government solve the PLUS toll issue.
For instance, sometime late last year, Malayan Banking Bhd had submitted a proposal that entailed creating a highway real estate investment trust (Reit) that would absorb all the highways from their owners in return for units in the Reit, which would carry a high dividend yield. Sources say that Halim was linked to that deal.
Tan Sri Abu Sahid Mohamed, who had put in a bid in 2017, is said to be submitting a fresh one that entails buying out PLUS from the government with a promise to reduce toll rates by running the highway more efficiently.
Another proposal is an extensive one by Lembaga Lebuhraya Malaysia, with what has been described as a "holistic solution for toll reduction".
What is important to note, though, is that PLUS, which is currently owned by Khazanah Nasional Bhd via UEM Group Bhd and the Employees Provident Fund (EPF), has provided good dividend yields to these agencies. Khazanah has a 51% stake in PLUS, while the EPF owns the remaining 49%.
So, removing them as owners would mean that these institutions will no longer enjoy those healthy yields.
It is worth noting that PLUS was paying a dividend of between RM700mil and RM815mil annually to its shareholders from 2015 to 2017.
What is also interesting is the financials of PLUS, which seem to be not in the best shape.
For the financial year ended Dec 31, 2017, PLUS posted a loss of RM114.8mil compared to a net profit of RM309mil a year earlier. Revenue in 2017 was lower at RM3.9bil compared to RM4.06bil previously.
As of Dec 31, 2017, PLUS had accumulated losses of RM3.98bil that could be due to its dividend payouts exceeding its profits.
To be sure, currently, PLUS’ cashflow is still strong and more than enough to service its debts.
Its free cashflow was in excess of RM1.9bil in the first nine months of 2018, according to a report by rating agency Malaysian Rating Corp Bhd, which also allowed it to declare dividends to its shareholders.
PLUS is the largest highway concessionaire in the country, operating eight expressways under five concessions.
Its highways are the 772-km NSE, which runs from Bukit Kayu Hitam in Kedah near the Malaysia-Thai border to Johor Baru; the New Klang Valley Expressway; Federal Highway Route 2; the Seremban-Port Dickson Highway; the NSE Central Link; the Malaysia Singapore Second Link; Lebuhraya Butterworth-Kulim and the Penang Bridge.
Its concession is expiring in December 2038.
A takeover of PLUS by the government would be an expensive one, considering that the company has total debts of about RM33bil.
It has been said that there is a big repayment of PLUS’ bonds starting next year, which could mean that its surplus cashflows would be reduced and the potential for dividends being paid out to its shareholders would also be lessened.
However, there is no necessity to repay the entire bond sum as there is always an option of refinancing.
As long as bondholders are made aware of a plan on how to deal with the repayment, they should be comfortable.
According to a news report, PLUS managing director Datuk Azman Ismail said the group is open to a toll concession takeover by the government.
“We are a concession company and we have signed agreements with the government. If the government wants to change (the agreements), we will look at it (proposal), in accordance with the agreement. We just have to wait and see what the government has to offer,” he said in response to a question posed on the matter.
In 2017, Abu Sahid, whose Maju Holdings Sdn Bhd is the concessionaire for Maju Expressway, had proposed to acquire PLUS for RM36bil, including taking over RM30bil of PLUS’ debts.
The question is, should PLUS go into private hands or remain in the ownership of the government, considering that there are proposals by the private sector that claim they are able to manage the highways without toll rate hikes or reductions in some cases.
These parties claim that the current cost of operating PLUS is too high and that they could do without a rate hike by simply managing down the operating expenses.
On the other hand, should the government pay huge amounts in compensation to the private sector in order to nationalise these infrastructure assets?