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This article first appeared in The Edge Malaysia Weekly on September 2, 2019 - September 8, 2019

THE Cabinet is likely to make a decision this week on whether to sell the toll road concessions in the country or to buy them back from the holders.

Discussions, likely to be held on Wednesday, will also touch on issues such as who will undertake the maintenance of the highways, which could be a lucrative business.

“There will at least be some clarity … there is a proposal to sell some concessions of highways, and others to buy the concessions of other highways, and these proposals are with different government entities. Many things have to be cleared up, including the maintenance contracts — which is a very profitable business — and who will pay for the maintenance,” says one observer.

The decision by the Cabinet comes on the back of two separate proposals. The first proposal comes from Tan Sri Abu Sahid Mohamed and his flagship Maju Holdings Sdn Bhd — they are looking to buy the concession to run and operate PLUS Malaysia Bhd, taking it off Khazanah Nasional Bhd and the Employees Provident Fund (EPF).

In a nutshell, Maju’s plan requires extensions of the current concessions involving PLUS that will expire in 2038, with four possible scenarios — a 25% reduction in toll rates, which would entail Maju getting a 10-year extension of the concessions; a 30% reduction, with a 15-year extension; a 33% reduction, if the concession is extended for 20 years; and a 36% reduction for a 30-year extension or until 2068.

The proposal hinges on the government maintaining its guarantee on PLUS’ debt structuring throughout the concession and extension periods.

This is Abu Sahid’s revised plan with Evercore Asia Ltd. The latter had tweaked his earlier proposal to take over PLUS, which had been submitted to the Barisan Nasional government in September 2017 but did not gain traction.

At present, Khazanah, which is controlled by the Minister of Finance Inc (MoF Inc), has a 51% stake in PLUS while the EPF controls 49%.

PLUS has five concessions under its belt — Projek Lebuhraya Utara-Selatan Bhd, which has the 772km North-South Expressway (the main revenue generator), New Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway; Expressway Lingkaran Tengah Sdn Bhd, which includes the North-South Expressway Central Link; Linkedua (M) Bhd, which owns the Malaysia-Singapore Second Crossing; Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd or Butterworth-Kulim Expressway; and Penang Bridge Sdn Bhd.

While this proposal may have its merits, there are some who question Abu Sahid’s capability because Perwaja Holdings Bhd, a company controlled by him and Kinsteel Bhd’s Tan Sri Pheng Yin Huah, had faltered. Abu Sahid, however, did not sell any shares in Perwaja, which has since been delisted.

He had stepped down as chairman in July 2013. The company fell into the cash-strapped PN17 category later in the year.

Last week, Works Minister Baru Bian stated that Maju’s offer to take over PLUS “appears attractive” as it involves a significant reduction in toll rates.

Abu Sahid owns Maju Expressway Sdn Bhd, which operates the Maju Expressway that links the Kuala Lumpur city centre with Cyberjaya and Putrajaya.

The second proposal is from MoF Inc, which wants to take over four toll highways owned by construction outfit Gamuda Bhd and its 43.56% publicly traded unit Lingkaran Trans Kota Holdings Bhd (Litrak) for RM4.5 billion cash.

MoF Inc has made an offer to Gamuda’s units — its 70%-owned Kesas (Konsortium Expressway Shah Alam Selangor) Holdings Sdn Bhd, 52%-owned Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (better known as SPRINT Holdings), Litrak and 50%-owned joint venture Projek SMART Holdings Sdn Bhd — to acquire each of their toll concessions.

The acquisition values the four concessionaires at an enterprise value of RM6.2 billion — RM1.377 billion for Kesas, RM1.98 billion for SPRINT, RM2.47 billion for Litrak and RM369 million for SMART. The offer for Litrak was RM5.20 per share.

Finance Minister Lim Guan Eng has come out in the press to explain that the government’s RM6.2 billion offer would save taxpayers RM5.3 billion in compensation to the concessionaires. Lim has proposed congestion charges, meaning tolls will only be charged during peak hours.

Possibly as a result of the impending decision by the Cabinet, Gamuda announced last week that the four highways under its control and MoF Inc had “mutually agreed to extend the cut-off date to negotiate and finalise the terms of the definitive agreement from Aug 30, 2019, to Oct 31, 2019”.

This proposal has raised several questions, including why should the government buy back the concessions and assume more debt just to reduce the toll charges?

Hanging in the balance is a proposal made known two weeks ago by New Straits Times, citing sources who suggested that the government had a proposal to take over 15 highways for RM43 billion.

One of the salient features of the plan is that the government is offering to acquire highways owned by PLUS, including the North-South Expressway, for RM30.8 billion; Projek Lintasan Kota Holdings Sdn Bhd’s (Prolintas) for RM3.1 billion; Gamuda’s for RM5.6 billion; and IJM Corp Bhd’s — namely Sungai Besi Expressway or Besraya, Lebuhraya Kajang-Seremban or LEKAS and the West Coast Expressway, which is still being built — for RM2.7 billion.

Last October, a proposal was mooted to form a highway trust that could reduce toll charges by as much as 50%, by adopting a model similar to real estate investment trusts, but this did not generate much interest.

Khazanah, which is a unit of MoF Inc, is said to be undertaking the exercise to take over the 15 highways.

It is also noteworthy that PLUS and Prolintas, which is under the Permodalan Nasional Bhd banner, are government-controlled, while the other highway concessionaires are privately held.



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