PETALING JAYA: The upcoming restructuring of Projek Lebuhraya Utara-Selatan (PLUS) Malaysia Bhd’s concession to enable a 18% toll rate cut and an extension to the toll period may be the benchmark deal for toll reduction plans involving other highways in Malaysia.
RAM Rating co-head of infrastructure and utilities ratings Davinder Kaur said a sector-wide toll rate reduction will have to take into account the government’s limited fiscal space and the potential financial burden.
“From an investor and credit standpoint, any restructuring of PLUS should align to the current returns under its existing concession, and result in a neutral position or zero-sum game from an asset valuation and net present value perspective.
“From a financing standpoint, past restructurings, however, have been equitable to shareholders and lenders although it generally results in a refinancing of outstanding liabilities,” she said.
For context, highway concession restructuring is not new in Malaysia.
Her comments made to StarBiz came after Prime Minister Tun Dr Mahathir Mohamad told the media that toll rate at PLUS’ highways will be slashed by 18% beginning this year.
The concession period, on the other hand, will be extended by an additional 20 years up to 2058.
The largest restructuring to date was under PLUS in 2012 that culminated in the refinancing of the concessionaire’s financial obligations through the issuance of a RM23.35bil sukuk and a RM11bil government-guaranteed sukuk.
Previously, the restructuring of highway concession agreements by changing the toll rates and extending concession tenures had been undertaken to contain the government’s ballooning compensation payments to the highway concessionaire.
Pakatan Harapan, as part of its promises for the 14th general election, had promised to abolish tolls in Malaysia. However, the government has since backtracked on its promise, putting the blame on the country’s RM1 trillion debt for its inability to fulfil that pledge.
In an attempt to reduce public criticisms, the government decided to cut toll rates for PLUS highways. While this will have an immediate positive impact on the public, particularly highway users, it will also result in major cash flow implications on PLUS.
Concerns have risen on PLUS’ ability to service its RM30.2bil of debt, amid the reduced annual collection of toll payments. This is because a sizeable portion of the toll payments goes towards the redemption of the bonds.
The government will have to enter into a new supplementary concession agreement with Plus, noted senior analyst at Affin Hwang Investment Bank Bhd, Loong Chee Wei.
While the government has announced a 20-year extension of PLUS’ toll concession, the agreement will also have to take into consideration the lower cash flow from reduced toll rates, and ensure the debt repayments can be continued.
“They will have to restructure the repayment of the bonds to match the reduced cash flow of the concession, over the longer concession period,” he said.
Loong said they viewed positively the decision to keep PLUS in the hands of the government.
“At the end of the day, it is consistent with the government’s policy of retaining ownership of strategic assets and reducing toll rates.
“It is also consistent with the government’s aim to acquire concessions that have been privatised, such as other highways, with the intention of reducing toll rates there as well,” he said.
Dr Mahathir said yesterday that the Cabinet had decided not to sell the highway operator.
He said the government had studied the proposals it had received, and decided that it was best to keep it under the ownership of hazanah Nasional and Employees Provident Fund (EPF).
Currently, PLUS is controlled by the UEM Group – a subsidiary of Khazanah and the EPF.
Khazanah holds 51% stake in PLUS with the remainder 49% held by the EPF.
The government had taken a few months to come up with its final decision after considering four offers that were made to acquire PLUS, other than the proposal from Khazanah which sought for the government to take over the asset.
The offers for PLUS include one from Tan Sri Halim Saad and Datuk Wong Gian Kui; Widad Business Group Sdn Bhd; Hong Kong-based private equity firm, RRJ Capital; and Tan Sri Abu Sahid Mohamed of Maju Holdings Sdn Bhd.
RAM Rating co-head of infrastructure and utilities ratings Davinder Kaur said a sector-wide toll rate reduction will have to take into account the government’s limited fiscal space and the potential financial burden.
“From an investor and credit standpoint, any restructuring of PLUS should align to the current returns under its existing concession, and result in a neutral position or zero-sum game from an asset valuation and net present value perspective.
“From a financing standpoint, past restructurings, however, have been equitable to shareholders and lenders although it generally results in a refinancing of outstanding liabilities,” she said.
For context, highway concession restructuring is not new in Malaysia.
Her comments made to StarBiz came after Prime Minister Tun Dr Mahathir Mohamad told the media that toll rate at PLUS’ highways will be slashed by 18% beginning this year.
The concession period, on the other hand, will be extended by an additional 20 years up to 2058.
The largest restructuring to date was under PLUS in 2012 that culminated in the refinancing of the concessionaire’s financial obligations through the issuance of a RM23.35bil sukuk and a RM11bil government-guaranteed sukuk.
Previously, the restructuring of highway concession agreements by changing the toll rates and extending concession tenures had been undertaken to contain the government’s ballooning compensation payments to the highway concessionaire.
Pakatan Harapan, as part of its promises for the 14th general election, had promised to abolish tolls in Malaysia. However, the government has since backtracked on its promise, putting the blame on the country’s RM1 trillion debt for its inability to fulfil that pledge.
In an attempt to reduce public criticisms, the government decided to cut toll rates for PLUS highways. While this will have an immediate positive impact on the public, particularly highway users, it will also result in major cash flow implications on PLUS.
Concerns have risen on PLUS’ ability to service its RM30.2bil of debt, amid the reduced annual collection of toll payments. This is because a sizeable portion of the toll payments goes towards the redemption of the bonds.
The government will have to enter into a new supplementary concession agreement with Plus, noted senior analyst at Affin Hwang Investment Bank Bhd, Loong Chee Wei.
While the government has announced a 20-year extension of PLUS’ toll concession, the agreement will also have to take into consideration the lower cash flow from reduced toll rates, and ensure the debt repayments can be continued.
“They will have to restructure the repayment of the bonds to match the reduced cash flow of the concession, over the longer concession period,” he said.
Loong said they viewed positively the decision to keep PLUS in the hands of the government.
“At the end of the day, it is consistent with the government’s policy of retaining ownership of strategic assets and reducing toll rates.
“It is also consistent with the government’s aim to acquire concessions that have been privatised, such as other highways, with the intention of reducing toll rates there as well,” he said.
Dr Mahathir said yesterday that the Cabinet had decided not to sell the highway operator.
He said the government had studied the proposals it had received, and decided that it was best to keep it under the ownership of hazanah Nasional and Employees Provident Fund (EPF).
Currently, PLUS is controlled by the UEM Group – a subsidiary of Khazanah and the EPF.
Khazanah holds 51% stake in PLUS with the remainder 49% held by the EPF.
The government had taken a few months to come up with its final decision after considering four offers that were made to acquire PLUS, other than the proposal from Khazanah which sought for the government to take over the asset.
The offers for PLUS include one from Tan Sri Halim Saad and Datuk Wong Gian Kui; Widad Business Group Sdn Bhd; Hong Kong-based private equity firm, RRJ Capital; and Tan Sri Abu Sahid Mohamed of Maju Holdings Sdn Bhd.
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