Newsbreak: PLUS to raise RM7.5 billion sukuk as part of concession restructuring

TheEdge Mon, Jan 27, 2020 04:00pm - 4 years View Original


HIGHWAY concessionaire PLUS Malaysia Bhd is likely to have to raise RM7.5 billion via a sukuk as part of the restructuring of its concession agreements to bring about toll rate reductions, sources say.

“This is a way to crystallise the value of PLUS. The two investment banks hired have come up with a valuation of RM10 billion for the PLUS assets, and the government believes the range value of RM7.5 billion is a fair valuation for the assets. So, in this case, it is converting the RM7.5 billion value to debt, but the debt is self-funded through the revised toll collection over the concession period,” says a source familiar with the plans.

“It’s complicated, but it’s a very innovative structure. Basically, the more people use the highway, the more excess cash that will be generated to pay debts faster and shorten the concessions. The bondholders will be engaged for this as soon as possible.”

Another source says: “The plan is for the sukuk to be raised through a special-purpose vehicle [SPV].”

This confirms the valuation for PLUS’ assets as reported in The Edge on Oct 21, quoting sources as saying that the government was considering a maximum price of RM7.5 billion for the highway operator.

Last Friday, The Edge Financial Daily reported that the restructuring of PLUS’ concession agreements to bring about toll rate reductions is believed to entail the securitisation of its future cash flow estimated at RM7.5 billion, which is understood to have been derived based on the forecast of 1% annual traffic growth.

A source told The Edge Financial Daily that, to make up for the shortfall of toll collection from the 18% rate cut, the government would step in to guarantee the concessionaire’s debts amounting to about RM22 billion, on top of the RM13 billion that it had already guaranteed.

“The government’s fresh guarantee will help PLUS reduce borrowing costs as well as enable it to free up cash that is required to maintain PLUS’ AAA bond rating. The government, which is obliged to compensate PLUS for any toll hike freeze or cut, will be a stakeholder of the SPV. This structure saves the government billions on compensation,” a source told Edge Financial Daily.

Last Friday, the Prime Minister’s Office of Malaysia (PMO) announced that Khazanah Nasional and the Employees’ Provident Fund would remain shareholders of PLUS, and that PLUS’ concessions would be extended for 20 years from 2038 to 2058.

The statement from PMO notes that PLUS will hold the assets and liabilities of the company, but it made no mention of a government guarantee.

PMO adds that the government will implement an 18% reduction in toll charges on private vehicles plying PLUS-owned highways as early as Feb 1, 2020 to ensure there will be no toll rate hikes until the end of the 38-year concession between 2020 and 2058.

PMO notes in its statement: “Implementation of the toll cut is subject to approval by PLUS shareholders. No payment will be made by the government to PLUS as a result of the toll rate reduction.

“The government will no longer carry the burden of compensation to PLUS, where the government will garner savings estimated at RM42 billion throughout the concession period. PLUS stays as the operator and will continue to hold the assets and liabilities of the company and finance the operating and maintenance costs.

“This decision is made based on studies spanning over a year and a thorough consideration by multiple parties, including the Ministry of Works, Ministry of Finance and Ministry of Economic Affairs. The Cabinet has assessed and considered multiple proposals to make the best decision for all parties, especially the people.

“The government is confident the decision will provide many benefits to the people through toll rate reduction and at the same time enable PLUS to continue operating with a good financial position. The RM42 billion worth of savings can now be used by the government for initiatives that will benefit the people.”

Khazanah and EPF also issued separate statements on Friday noting that both entities welcomed the government’s decision on PLUS.

“Khazanah and PLUS will announce further details on the toll restructuring initiative after further consultation with the government and other key stakeholders,” notes Khazanah.

The statements from PMO, Khazanah and EPF did not disclose details on the much-anticipated structure, as it is understood that the government wants to engage with the bondholders first.

At its meeting on Jan 15, the Cabinet decided not to sell PLUS. The government announced that it had studied the proposals it had received, and decided that it was best to keep it under the ownership of Khazanah and EPF, which have 51% and 49% stakes, respectively, in PLUS.

There had been much anticipation on which party would bag the PLUS asset because, aside from the proposal to keep PLUS in the government’s fold, there had been proposals from four private parties: Maju Holdings Sdn Bhd, controlled by Tan Sri Abu Sahid Mohamed; private-equity fund RRJ Capital, led by Malaysian brothers Richard and Charles Ong; Tan Sri Muhammad Ikmal Opat Abdullah of the Widad Business Group Sdn Bhd; and businessmen Tan Sri Halim Saad and Datuk Wong Gian Kui, who made a joint offer.

Abu Sahid was quoted last Thursday in the media as saying that the government’s rollback on the PLUS sale was “stupid”.

Notes a banker: “It is frustrating for the bidders — the time and money spent to come up with the proposals and resubmission only to come back to ground zero.”

 

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