Since the deal was first announced by the Finance Ministry (MoF) in June, there have been conflicting opinions on the status of the RM6.2bil bid.
Works Minister Baru Bian joined in the fray and said that a decision on this would be made after a study by an independent consultant on the toll issue in the country was presented to the Cabinet.
In the end, the MoF’s plan prevailed.
In his Budget 2020 speech last week, Finance Minister Lim Guan Eng announced that the Cabinet had given its green light for the deal, which will be funded via a government guaranteed bond issuance.
So, what happened to the study? And will the same acquisition model be used for the takeover of other highway concessions such as PLUS Malaysia, which has attracted a string of suitors?
According to sources, there were several options listed down for the government’s consideration in the study, but no option was seen as the preferred choice.
“This is because there is no one best option. Some highways are profitable, some are not and some have their concessions near maturity, while yet others have a long way to go,” explains an industry player.
The MoF had offered RM6.2bil cash for the acquisition of four highway concessions, namely, Lebuhraya Damansara-Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Shah Alam Expressway (Kesas) and Smart Tunnel (Smart).
The offer translates to an equity value of RM2.36bil for Gamuda based on its effective stakes in the four inter-city highways.
Generally, many see the offer price as fair, although it comes about 16% below Gamuda’s discounted cash-flow valuation of RM2.8bil.
As for Gamuda’s 44% associate Litrak Holdings, the offer translates to RM2.75bil or RM5.21 per share.
Gamuda’s board and other concession boards have accepted the offer and the deadline for the signing of the definitive agreement is end-October, after it was extended by two months.
The deal requires 50% support from Gamuda shareholders and 75% from Litrak’s shareholders, which analysts say they are likely to secure.
Government-linked investment companies (GLICs) collectively own about 24% in Gamuda’s issued and paid-up capital.
As for Litrak Holdings, besides Gamuda’s 44% interest, two GLICs own 14% of the stock. Analysts reckon that there is also no reason for bondholders not to vote in favour of the deal.
Shareholders can expect to be rewarded, as Gamuda has guided that it will redistribute part of the disposal proceeds to its shareholders in the form of special dividends.
But beyond this, the company has to fill the vacuum left from the sale of its toll concessions and water concession business, Syarikat Pengeluar Air Sungai Selangor (Splash), to the Selangor state government last year.
Toll concessions contribute about one-third of its current earnings.
With this, the group will have construction and property as its two main business segments - sectors which are cyclical and riskier.
Assuming the sale of Gamuda’s toll road assets to the government is completed in January next year, the company will only recognise six-month
contributions from the highways in FY20, and none from FY21 onwards, says AmInvestment Bank Research.
Gamuda has identified the Penang Transport Masterplan (PTMP) project, which it hopes to get off the ground in the second half of next year, and its foray into Australia to fill in the earnings gap.
However, the PTMP project did not get a mention in the recent budget as many had anticipated, which leaves its exact funding mechanism still uncertain.
It has been reported that the Penang government hopes to get federal government funding for the multi-billion-ringgit project.
But riding in favour of Gamuda is that it has a strong enough war chest to kickstart the project, which includes developing the light rail transit (LRT) and Pan Island Link 1 (highway) projects.
The group will have a cash pile of over RM3bil, assuming Litrak Holdings distributes all proceeds to its shareholders.
Another concern is a shift away from the project delivery partner (PDP) model.
Gamuda is the PDP to implement the PTMP through its 60%-owned joint venture SRS Consortium.
“While Gamuda sees PTMP as a good fit, as it could potentially generate a recurring PDP fee for more than a decade, lately, there appears to be a shift towards the turnkey model for large projects,” says an analyst.
Recall that the MRT2 project, which was initially awarded to an MMC-Gamuda consortium on a PDP model, was changed to a turnkey basis.
The LRT3 and Pan Borneo Highway Sabah have also seen the cancellation of the PDP model.
But other industry sources believe that Gamuda is likely to keep its PDP role.
“This is not a straightforward infrastructure project. It is financed by a land swap which requires companies with a strong balance sheet to undertake the project,” says a source.
Elsewhere, Gamuda is vying for infrastructure projects in Australia where it recently acquired a 50% stake in Martinus Rail - the largest privately owned tier-two specialist contractor with track-related work.
According to analysts, the acquisition is expected to provide an opportunity for the company to tap into Australia’s infrastructure projects with up to A$20bil rail projects up for grabs. Martinus Rail has identified tendering for projects worth up to A$8bil in the next one to two years.
As at press time, the financial review reported that Martinus Rail had been awarded a A$100mil rail contract from Indian energy giant Adani Group for its Carmichael project in Central Queensland.
Gamuda’s outstanding order book stands at RM9.2bil currently.
While it is hardly going to be business as usual at the company, more analysts appear to be bullish on the stock if their consensus is anything to go by.
Bloomberg data shows that there are 11 “buy”, five “hold” and six “sell” calls on the stock.
Gamuda posted a fourth-quarter headline net profit of RM185mil, bringing its FY19 net profit to RM706mil.
Its shares closed at RM3.76 at last look - up 60.68% year-to-date.
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