Going green: Analysts laud Gamuda exiting highway business
KUCHING: The government has given the green light to the restructuring of four major highway concessionaires in the Klang Valley, namely Kesas Sdn Bhd (Kesas), Sistem Penyuraian Trafik KL Barat Sdn Bhd (Sprint), Lingkaran Trans Kota Sdn Bhd (Litrak) and Syarikat Mengurus Air Banjir & Terowong Sdn Bhd (SMART).
Private entity Amanat Lebuhraya Rakyat Bhd (ALR) has proposed to fully acquire the four concessionaires for RM5.48 billion, which will be funded through a sukuk.
Prime Minister Datuk Seri Ismail Sabri Yaakob in a statement said the restructuring will ensure that toll rates are frozen at current levels until the end of concession periods.
Net savings to the government would come up to about RM4.3 billion, due to toll subsidies that would have needed to be paid due to increase in toll rates as stipulated in the respective concession agreements.
To note, ALR is a not-for-profit private company independent of the Government which was established in 2021 for the sole purpose of acquiring highway concessions.
All profits generated through the operations of the four highway concessions are solely for the servicing and early redemption of the sukuk and ALR has the obligations to return the concessions to the Government as soon as the sukuk is fully redeemed.
“The tolling for the four highways is expected to end by May 2032 but there is an extension by six years each for Kesas and SMART and 10 years each for LDP and SPRINT,” commented MIDF Amanah Investment Bank Bhd (MIDF Research).
“The extension is only but a buffer in the unlikely event that traffic volumes fall short of projection, to protect ALR and the sukuk holders.”
Since there is a permanent negative covenant of no dividends to ALR’s shareholders, MIDF Research said all the concessions would return to the government immediately after the sukuk principal and interest are fully repaid.
In other words, the sooner ALR repays the sukuk, the sooner the concessions are handed back to the government.
“The disposal of the concessionaires to ALR allows Gamuda to unlock its value of its highway concessions,” MIDF Research added. “Kesas is Gamuda’s 70 per cent subsidiary while the group also has a stake in Sprint (51.6 per cent), Litrak (43.2 per cent) while SMART is a 50 per cent joint venture company. Gamuda’s share of the proceeds is expected to sum up to RM2.33 billion, of which RM1 billion will be recognised as one-off gains.
“This also adds muscle to Gamuda’s balance sheet from a net debt position of RM1.7 billion to a net cash of RM600 million, which augurs well for the group to explore the private finance initiative (PFI) for infrastructure projects, such as the MRT3, of which tenders are expected to be called next month.”
In an analyst briefing, management indicated that the RM2.33 billion will be used to reward shareholders, reinvestment and reduction of borrowings.
On the other hand, MIDF Research said Gamuda’s exit from the highway concessions business means that it would be losing its defensive earnings coming from its highway business, which generates about RM170 million of net profit annually, accounting for 20 to 25 per cent of the group’s net earnings.
“But even if there was no disposal, the concessions are approaching its end soon, such as Kesas in 2028 and LDP in 2030. Management guided that there would be a drop in earnings in FY23 and is optimistic on bouncing back in FY24,” it added.
“Also, management stressed that going green is the way forward for the group and getting out of the highway business was actually a positive move to reduce its carbon footprint.
“Gamuda is currently looking at concessions in the green or renewable energy space to rebuild a sustainable recurring income. Without divulging too much details, management said it would hopefully be able to announce “a few wins” in the renewable energy space, which will be funded by its proceeds of the highway disposals.”