PLUS – who guarantees the debt?

IN reality, all the toll highways are owned by the bond holders. Whenever there is a change in major shareholders of the highway, the owners need to get the consent of bond holders.

The experience of Silk Highway is ample evidence that the holders of debt have a big say in the ownership of highways.

In respect to the North South Expressway (NSE), the government-controlled Employees Provident Fund (EPF) holds a large chunk of the Rm30bil Islamic debt papers. The government guarantees Rm11bil of the debt papers.

Essentially there is a huge “government element” involved in the rating of PLUS and the debt papers.

There are four suitors from the private sector who are keen on taking over the ownership of the NSE. The fact that there are suitors is ample evidence that the NSE is profitable to manage and operate.

However, is it still viable if the private entity is to absorb the debt as well on its own balance sheet?

Should NSE be “sold” to a private entity -a decision that the government is expected to make next week – would the government guarantee still stand? Would the EPF be allowed to sell down on the debt papers if it chooses to?

Central to the issue of the takeover of NSE, is the guarantees and comfort that the new shareholder should give to the bond holders.

In the case of EPF, it would not be wise to stay on as a bond holder if NSE is not owned by the government. The risk is high as private owners may gear up at some point during the concession period in its efforts to meet the demands of the government to reduce toll rate by at least 18%.

The extension of the concession period is given, if toll rates are to be reduced. And there is no such thing as abolishing toll rates completely because if it happens, there would not be any difference between the federal roads and highways.

Considering the circumstances, the highways are best left with the government. They can get the cheapest financing rates, can decide to reduce toll rates at any rate they wish to without having to worry about compensation payment.