Lower toll rates ahead?

PLUS to be privatised?

PETALING JAYA: The Employees Provident Fund, together with Khazanah Nasional Bhd’s wholly-owned UEM Group Bhd, is likely to make an offer to acquire the entire assets and liabilities of PLUS Expressways Bhd in a deal which values the highway operator at some RM23bil or close to RM4.60 per share.

However, it is believed that talks were still ongoing till late yesterday and the deal’s final outcome (as at press time) remained fluid on the takeover of PLUS, which is hoped will pave the way for the restructuring of the toll concession agreement (CA) to allow for “more equitable and fair” toll rate increases in future.

Khazanah owns a 56% stake in PLUS, directly (17%) and through wholly-owned UEM (39%). The EPF has a 12.3% stake while Kumpulan Wang Persaraan (KWAP) has a direct stake of 6% in PLUS.

“The whole premise of this deal is that the Government is concerned about the impact of toll rates on the cost of living of the people and is keen to manage a more affordable and fair toll structure where the burden can be shared by the Government, toll users and the toll operator’s shareholders,” said a source.

Sources close to the deal said the asset and liability route was the preferred option because a general offer (GO) for the shares could “end up messy.”

“You can’t tinker with a concession agreement when there are minority shareholders. It would be unfair unless they agree to it. A GO doesn’t give the certainty that it can take out everybody. If a minority decides to stay on, they could hold the Government hostage by refusing to restructure the concession. The only way to do it is to offer minorities an exit plan,” said the source.

PLUS Expressways’ crown jewel is PLUS, the highway concessionaire of the North-South Expressway (NSE), New Klang Valley Expressway (NKVE), Federal Highway Route 2 between Subang and Klang (FHR 2) and Seremban-Port Dickson Highway), which contributed a bulk or some 90% to group revenue in 2009.

The restructuring of the concession, it is believed, will largely involve tweaking the quantum of toll rate hikes, which as it stands now is too high. As raising toll rates would lead to public outcry given its impact on the cost of living, the Government has been forking out huge sums as compensation to PLUS for deferring toll rate revisions in recent years. The next rate revision is due in January 2011.

Currently, the PLUS concession agreement, which was revised and implemented in 2002, allows for toll rates to be raised by 10% every three years (as opposed to 26%-33% hikes every 4-5 years previously). The concession which was originally awarded for 30 years in 1988, was extended in 1999 by 12 years to 2030 and in 2005, by another eight years to 2038.

“We are not talking about no increase in toll rates forever. The whole purpose behind PLUS was to build a convenience on the basis that people who use it, will pay for it. The issue is that the rate of toll increases under current agreement is on the high side. If there’s a way to reduce the rate increase and restructure the concession while still ensuring that EPF, as a shareholder is not worse off, that would be the way to go,” said the source.

Sources said that once PLUS is owned by EPF and Khazanah, which enjoy much lower cost of funds or financing by virtue of being Government-linked, the highway operator’s capital structure can be improved, resulting in cost savings which could be used to lower toll rate hikes.

No doubt, the toll operator’s plus points are aplenty – a strong business profile, largely backed by the NSE’s strategic alignment, steady cash and resilient traffic flow. For this reason, in recent months it has been the takeover target of two companies – Asas Serba Sdn Bhd, perceived to be linked to Tan Sri Halim Saad and MMC Corp Bhd, controlled by Tan Sri Syed Mokhtar Albukhary – who have ambitiously stated that if they were to secure the asset, toll rates would be capped or cut.

Given the strategic interest of an asset such as PLUS, Government-owned Khazanah and EPF have managed to outflank these bids from the private sector. Khazanah will manage to retain its hold on the highway operator while EPF will end up with a bigger slice of the cash cow.

“The end game is that the Government wants a fairer toll rate for the people. For that, the owners of PLUS need to be funds with a long-term asset outlook. For EPF, PLUS is a solid asset – its returns are extremely visible over the years and predictable over the future. It falls in place with EPF’s objective of investing in assets that can give it a double-digit internal rate of return and good dividend.

“The best part is that PLUS is not a greenfield project,” said the source.

In the past weeks, on the back of the potential takeover, the share price of PLUS has been steadily rising, closing at a high of RM4.46 on Wednesday from a low of RM3.20 in May 27 this year. Trading in the counter is suspended for two days following a request by its major shareholder (Khazanah) pending an announcement which is expected to be made today.