Gamuda’s proposal on highway trust’s acquisition of 4 tolled highways praised
KUCHING: Analysts have praised the proposal put forth by Gamuda Bhd (Gamuda) to have their four tolled highways acquired by a highway trust for RM5.2 billion through monies raised from bond issuances.
The plan was tauted to benefit Gamuda, the federal government and to a lesser extent the businesses and citizens concentrated in KL and Selangor.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that over the weekend, Gamuda has put forward a proposal to the government to sell four of their highway concessions to a trust known as Amanah Lebuhraya Sdn Bhd.
“This trust will fund the acquisitions by raising monies from bond investors with a promised annual return of four to five per cent backed by cash flows from the tolls without any need for government guarantees,” Kenanga Research gathered.
These four highways’ enterprise value (EV) is estimated to be RM5.2 billion, lower than the RM6.2 billion valuation accorded in 2019 after accounting for two years of less cash flows – in line with Kenanga Research’s estimates.
Dissecting the RM5.2 billion EV valuation, the research arm estimated the four highways having an equity value of RM3.7 billion with remaining debt of RM1.5 billion.
“Consequently, Gamuda’s effective equity stake would be valued at circa RM1.9 billion – of which they would record a gain of circa RM0.7 billion based on their financial year 2020 (FY20) effective net asset value of RM1.2 billion for the highways.”
Kenanga Research also gathered that in exchange for no toll hikes moving forward, the concessions would be extended by tentatively five years with an option of another two to three years’ extension to cover any deficits to repay the trust bonds.
“If the government intends to continue freezing toll hikes, we think this highway trust proposal could be the best way forward, instead of opting for a compensation method given their weak fiscal position.
“We believe this deal would greatly benefit Gamuda, the Federal Government and to a lesser extent the businesses and citizens concentrated in KL and Selangor.”
According to Kenanga Research, the upfront cash obtained by Gamuda can be invested into other new growth areas, while at the same time liberate them from policy, traffic and regulatory risks.
“Given the government’s recent intention to have more private funding initiatives (PFI) for public projects such as the MRT3, we think such lump sum cash would be ideal for Gamuda to help jump start this initiative – indirectly also benefitting the government by alleviating their cash flow burdens for this mega project.
“Should such sale go through, Gamuda’s net gearing position would improve to 0.06-fold (from 0.28-fold as of January 2021).
“Meanwhile, the government would also save on circa RM5.3 billion of toll compensations (from the toll hike freeze) for the remaining concession period for the tolls.
“As for the businesses and citizens in KL and Selangor, while they get to enjoy zero toll hikes, though they will have to pay tolls for a longer tenure – hence we are only mildly positive from their perspective.”
Unlike the 2019 model which requires the government to acquire the tolls and be the ultimate guarantor, Kenanga Research believed this proposal is much better for the government’s books as it is risk-free for them.
Should this proposal go through, Kenanga Research said it will open doors for other existing toll concessionaires to sell their matured highways (provided attractive terms are offered to bond investors) to channel the proceeds for new areas of growth – should there be opportunities.