New regulatory framework a long-term positive for MAHB
KUALA LUMPUR: While the final regulated asset base (RAB) structure for Malaysia Airports Holdings Bhd (MAHB) is still at its early stage, Maybank Investment Bank Bhd’s research arm (Maybank IB Research) is positive on the new framework which it says, could see MAHB’s business fundamentally change for the better.
Following a meeting with MAHB’s management team, the research house noted that MAHB is confident that it is entering into this new RAB framework in a position of strength as there will be greater transparency, apportionment of responsibility and provide better regulatory stability.
In the case of MAVCOM’s drive to move Malaysia’s aviation industry towards an incentivebased regulation (IBR), Maybank IB Research pointed out that IBR has historically proven to be a good thing for airport operators.
“It is advantageous for businesses under an IBR framework to take on higher debt. This is the easiest way to reduce its weighted average cost of capital (WACC).
“Furthermore, the higher regulatory certainty is positive for credit rating and financiers are willing to provide higher debt without imposing punitive covenants,” it noted.
“We think MAHB will have to explore ways to tweak its capital ratio in order to optimise its WACC. As at end of 2017, MAHB has RM2,320 million of retained earnings as part of its shareholders’ equity and this entire amount can be paid out as special dividends.
“Although management has not mentioned anything about this, we think there is a possibility and shareholders are likely to be supportive.
“The debt market will likely be MAHB’s main source for capital in the future, in our view,” it opined.
Detailing on how Malaysia’s airports could work in this framework, Maybank IB Research stressed that MAVCOM would have to resolve many issues on multiple dimensions in order for this regulatory to work.
“Firstly, we think the RM11 per pax domestic passenger service charge (PSC) is simply too low and unsustainable to cover the operating cost of a predominantly domestic airport.
“Second, trying to determine the asset value will be a challenge as many airports are built from the British colonial period. Will MAVCOM value these assets at historical book value or at current fair market value?
“Third, the dormant airports will add to the RAB base, thus might negate MAVCOM’s very intention to promote efficient asset use.
“In addition, MAVCOM has to ensure that the rewards structure from MAHB’s Operating Agreement (OA) with the Government is not impaired,” it opined.
“It is fair to say that the Malaysia airport IBR framework is far more complicated than UK’s experience. As such, we believe that MAVCOM’s intention to start this new regulatory in 2020, which is less than two years post its first engagement, could be optimistic,” it commented.
Meanwhile, on MAHB’s current OA with the Government, the research house noted that MAHB has pointed out that the OA bind has its flaws and it had impeded its ability to deliver excellent service to passengers.