KUALA LUMPUR (March 6): Permodalan Nasional Bhd’s (PNB) wholly owned unit Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) is listing its four highway concessions via a business trust to raise RM445.3 million. 

The initial public offer (IPO) of Prolintas Infra Business Trust, the first of its kind being listed on Bursa Malaysia, is priced at 95 sen per unit. There is only an offer for sale of 468.7 million units to the public and institutional investors. The trust does not issue any new units for the listing exercise. 

The four toll highways — Ampang-Kuala Lumpur Elevated Highway (Akleh), Guthrie Corridor Expressway (GCE), Lebuhraya Kemuning-Shah Alam (LKSA), and Sistem Lingkaran Lebuhraya Kajang (Silk) — are valued at RM1.05 billion based on unit base of 1.1 billion units.

Prolintas Infra, which is set to be listed on March 25, intends to distribute yearly distributions of at least 90% of the business trust’s distributable amount, according to Prolintas chief executive officer Datuk Mohammad Azlan Abdullah.
 

For the current financial year ending Dec 31, 2024 (FY2024), Prolintas Infra is targeting to distribute RM70 million. The payout translates into a 6.4 sen distribution per unit based on 1.1 billion units in the business trust.

Based on the IPO price of 95 sen per unit, the implied distribution yield is about 6.7% for FY2024.

For comparison, AmFIRST Real Estate Investment Trust (REIT) had a distribution yield of 8.6% for FY2023 — the highest distribution yield among REITs listed on Bursa Malaysia — followed by Sentral REIT at 8.4%, Hektar REIT at 8.1% and IGB Commercial REIT at 7.1%. (see table)

It is worth noting that the four highways collectively recorded a net loss of RM256.95 million on revenue of RM228.57 million for the nine-month financial period ended Sept 30, 2023 (9MFY2023). The loss was wider than in the previous year's corresponding period of RM9.6 million on the back of RM285.32 million in revenue then.

The impairment of highway development expenditures (HDE) of RM124.24 million and amortisation of HDE amounting to RM32.86 million had contributed to the trust’s losses. In addition, it incurred finance costs of RM107.45 million and income expenses of RM171.35 million for 9MFY2023. 

As at Sep 30, 2023, the four highways’ combined cash balances totalled RM348.47 million, while its net debts stood at RM1.83 billion. 

The sizable impairment on HDE of Akleh and LKSA as well as the reversal of deferred tax assets from both Projek Lintasan Shah Alam Sdn Bhd and Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd, resulted in the business trust recording a negative total equity of RM13.6 million as at Sept 30, 2023, the IPO prospectus stated.

In view of the accounting losses, Mohammad Azlan explained that Prolintas has opted to undertake the IPO via a business trust structure to enable the company to pay distributions out of cash flow without being constrained by accounting profits. As such, Prolintas Infra will still be able to pay out distributions despite incurring accounting losses. 

"The reason why we set this up in the business trust structure is purely for the cash flow. Dividends will be paid out from the operating cash flow, which is revenue after operating cost rather than conventionally where it is paid out from the retained earnings.

"The focus for the trust is to ensure capability to pay out an attractive dividend yield. 

“As we have already targeted a payout of RM70 million for the first year, it comes down to a yield of 6.7%. With this, we hope we can attract interest from investors," he said at the launch of the IPO prospectus on Wednesday.

Business trust is an asset class introduced in the Malaysian capital market following the release of the Securities Commission Malaysia's Business Trusts Guidelines which came into force on Dec 28, 2012. Conventional companies are restricted to paying dividends out of accounting profits, while business trusts can pay distributions to investors out of operating cash flows. 

This structure is suitable for businesses which are capital-intensive with stable cash flow but may be affected by high depreciation charges, much like a highway concessionaire. 

One of the benefits of a business trust structure is that it allows investors to have a direct exposure to cash flow-generating assets. The structure breaks down big ticket assets into liquid and affordable units which are traded on the exchange, giving investors a new alternative to existing yield.

There are eight cornerstone investors led by PNB’s investment funds, Yayasan Pelaburan Bumiputera, Lembaga Tabung Haji, AIIMAN Asset Management, AHAM Asset Management, Maybank Asset Management, and Kenanga Investors.

PNB will hold a 51% stake in the business trust upon completion of the IPO. 

The concession periods for GCE, LKSA and Silk will all expire in 2062, and management has indicated that there will be two scheduled toll hikes during this period. Meanwhile, the concession period for Akleh will expire in 2037 and there will be no planned toll hikes during the period. 

Prolintas' IPO is the largest listing, in terms of proceeds, since health supplement company DXN Holdings Bhd raised RM653 million in May 2023. 

Read also:
Prolintas Infra Business Trust starts taking orders for up to RM445.3m IPO
Prolintas inks underwriting agreement, set for 1Q listing
Prolintas obtains RM2.7b financing to restructure four highway concessions for IPO plans
PNB poised to raise RM1.5 bil from listing of highways