PLUS highway - who guarantees the debts?

  • Corporate News
  • Saturday, 11 Jan 2020

PLUS North South highway juru

PLUS – who guarantees the debt? In reality, all the toll highways are owned by the bond holders. Whenever there is a change in major shareholders of the highway, the owners need to get the consent of bond holders.

The experience of Silk Highway is ample evidence that the holders of debt have a big say in the ownership of highways.

In respect to the North South Expressway (NSE), the government-controlled Employees Provident Fund (EPF) holds a large chunk of the RM30bil Islamic debt papers. The government guarantees RM11bil of the debt papers.

Essentially there is a huge “government element” involved in the rating of PLUS and the debt papers.

There are four suitors from the private sector who are keen on taking over the ownership of the NSE. The fact that there are suitors is ample evidence that the NSE is profitable to manage and operate.

However, is it still viable if the private entity is to absorb the debt as well on its own balance sheet?

Should NSE be “sold” to a private entity -- a decision that the government is expected to make next week – would the government guarantee still stand? Would the EPF be allowed to sell down on the debt papers if it chooses to?

Central to the issue of the takeover of NSE, is the guarantees and comfort that the new shareholder should give to the bond holders.

In the case of EPF, it would not be wise to stay on as a bond holder if NSE is not owned by the government. The risk is high as private owners may gear up at some point during the concession period in its efforts to meet the demands of the government to reduce toll rate by at least 18%.

The extension of the concession period is given, if toll rates are to be reduced. And there is no such thing as abolishing toll rates completely because if it happens, there would not be any difference between the federal roads and highways.

Considering the circumstances, the highways are best left with the government. They can get the cheapest financing rates, can decide to reduce toll rates at any rate they wish to without having to worry about compensation payment.

ASIA POLY in Dolphin

Dolphin Holdings Bhd, a company that is into constructing and upgrading of palm oil mills has a new substantial shareholder in Asia Poly Holdings Bhd.

Dolphin has not had a good stint in the last few years. The external auditor expressed concern on a project to upgrade and optimise a palm oil mil due to possible cost over-runs in its accounts for the financial year ended December 2018. The board however disagreed with the opinion of the external auditors and felt that the project would be completed and provide recurring income to the company.

Last week, one of the key figures of the company, Chua Seong Seng, announced that he was no longer a substantial shareholder. Asia Poly emerged as a shareholder around the same time, which means that the company which is listed in the ACE, had probably purchased the shares from Chua or entities linked to him.

Asia Poly is a company that manufactures high end acrylic sheet for application in a wide range of industries from buildings to food and catering and even for medical applications. Early last year the company was speculated to venture into the food and beverage sector.

It was a shareholder in D’Nonce Technology Bhd, a company that had its fair share of boardroom battles early last year. Asia Poly’s entry into D’Nonce came after the company saw the emergence of Datuk Yeo Boon Leong as a major shareholder with a 21.23% stake in January last year.

Asia Poly is no longer a shareholder in D’Nonce after having sold its interest in December last year. Following the disposal of D’Nonce shares, Asia Poly has emerged in Dolphin.

What does Asia Poly see in Dolphin?

One of the common interest between both companies is renewable energy. Is that the reason for Asia Poly’s entry into Dolphin?

Cutting quarterly reporting

Many developed markets have done away with quarterly reporting by listed companies.

The European Union scrapped it about seven year ago, while in Hong Kong, quarterly reporting is now compulsory for firms listed on its junior board.

The US Securities and Exchange Commission is also reportedly reviewing the issue now, while closer to home, Singapore Exchange (SGX) said it plans to “make life easier” for listed companies - for the safer ones, at least.

In an announcement on Thursday, the Singapore bourse’s regulatory arm said it plans to end quarterly earnings reporting requirements that currently apply to all companies with a market capitalisation of at least S$75mil.

When the rule change takes effect on Feb. 7, only riskier companies will need to report earnings every three months. The exchange will also tighten other disclosure rules and introduce a new whistleblowing policy as part of efforts to protect investors.

So should Malaysia follow in the footsteps of its peer across the causeway?

Quarterly reporting has its merits and demerits and the debate on the issue is not a new one.

Proponents of the practice say it helps build trust between shareholders and the company’s management.

One obligation of a listed company is to provide transparent communications about issues that may affect the value of the company. Quarterly report provides this.

Investors, in turn, rely on timely information to make informed decisions.

Costs savings from accounting, legal, filing and others are often cited as reason to do away with the practice. But a bigger matter is perhaps the pressure on companies to “deliver” every quarterly. This can lead to an unhealthy preoccupation with short-term profits at the expense of long-term value building, some argue.

There is also worry that less frequent formal disclosure could disadvantage retail investors, who do not have access to information like the big boys.

And with stocks markets more volatile now, one would think that investors need all the information they can get their hands on to make the right decision.

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PLUS , highway , debts , pays , quarterly , reports , SGX , Asia Poly , Dolphin ,


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