Battle for PLUS to end soon
Finance minister says the government will consider all proposals
THE takeover of PLUS Expressways Bhd is likely to end with the latest proposal announced by Finance Minister Lim Guan Eng in his Budget 2020 speech.
He said that the government will consider all proposals, including one from Khazanah Nasional Bhd.
He also stated that on average the toll rate will be reduced by 18% and will save some Rm43bil for highway users until 2038 when the tenure of PLUS concession ends.
Sources say that the existing shareholders of PLUS, which is UEM Group and the Employees Provident Fund (EPF) had proposed a toll reduction but at a lesser amount.
UEM’S parent company is Khazanah Nasional.
“A drop in toll rates and without increasing the tenure is a good proposition. But who has proposed the deal is something that is left to be seen. It is not easy to drop the rates and not increase the tenure,” says a source.
Lim had said that highway users would save some Rm1.13bil next year, indicating that the government is likely to make a decision on the matter soon.
Nevertheless, companies continue to put in their proposal to takeover PLUS.
The latest is little known.
Latest being little known Widad Business Group, which has its subsidiary Widad Group Bhd listed on Bursa Malaysia with a market capitalisation of some Rm700mil.
Widad is offering Rm3bil cash to buy up the equity portion of UEM and EPF that hold PLUS in proportions of 51%-49%.
Widad’s founder is Tan Sri Muhammad Ikmal Opat Abdullah.
The group has more than 60% stake in Dataprep where it emerged in October 2017.
Widad’s offer comes after a recent offer for the highway from Hong Kong-based private equity firm RRJ Capital which according to reports had proposed to acquire PLUS for Rm3.5bil.
And RRJ’S offer comes amid another offer by Maju Holdings Sdn Bhd which is controlled by businessman Tan Sri Abu Sahid Mohamed.
Maju Holdings had recently offered to acquire PLUS at an enterprise value of Rm34.9bil, an offer which also includes the leading highway operator’s debt to its bondholders.
“All the parties are offering a cut in toll rates. But the shareholders of PLUS say that the offers on the table does not reflect the full value of PLUS,” says an investment banker.
“The fear is that if PLUS falls into private sector hands, it will come with strings attached such as a longer concession period for a lower toll rate,” he says.
Khazanah managing director Datuk Shahril Ridza Ridzuan had been reported as saying that the national sovereign wealth fund was not interested in selling PLUS Expressways, despite the various offers that have been received.
He had said that these suitors were offering a much lower price than PLUS’ real value.
“What they are doing is they want to take money from us by paying us basically a substandard price and using that difference in value to offer a discount,” he was reported as saying earlier.
“You should offer the fair market price. .. If you want to have a discount, then it’s up to you. It should be from your profit, not from us,” Shahril added.
Shahril also pointed out that the public may not be too happy with the government if they have been short-changed with the private sector making a handsome profit from them forking out tolls to use the highway.
“If you were to allow a private party to take over PLUS, and that party suddenly made a lot of profit, people will be very unhappy,” Shahril had said.
At this point, all the offers appear to address the direct outstanding debts, asset values and other obvious obligations to its shareholders.
The finer points are not disclosed if the offeror is unable to financially sustain the toll operations and meet the debt obligations.
The offers have mainly dangled a cut in toll prices for consumers of up to 36% , which is in response to with the government’s objective to abolish toll rates.
However while the abolishment of tolls was part of the promise made in the 2018 General Election manifesto, the actual implementation is becoming a political `hot potato’.
This is because there is a view among some in the government that PLUS should remain with government entities.
Sources say that the returns from PLUS play an important role in EPF’S dividend pay outs annually.
“The fear is that the EPF will lose out from the sale of an asset that is deemed important to the fund,” said a source.
PLUS is also seen as an important infrastructure as it traverses the whole west coast of Peninsular Malaysia region, across several states.
“Important infrastructure are owned by government funds as they have a cheaper source of funding. Just like Tenaga Nasional and Telekom Malaysia,” says the investment banker.
He says that the issue now is the maintenance cost of PLUS which the private sector feels can be improved.
“If an offer comes up to maintain the highways at a cheaper cost than the existing rates, without a takeover of the asset, it would be something that the government would be forced to consider,” says the banker.
Irrespective of who owns the highways, toll rates will continue.
Otherwise, there would be no difference between the current freeways and highways. However the toll rates will be at least 18% lower.