This article first appeared in The Edge Malaysia Weekly on March 11, 2024 - March 17, 2024

THE listing of Projek Lintasan Kota Holdings Sdn Bhd’s (PLKH) highways is finally taking place after more than eight years in the making.

In two weeks, Prolintas Infra Business Trust, which owns four highways in the Klang Valley, will make its debut on Bursa Malaysia. It is touted as the first highway business trust in Southeast Asia.

The listing will be a test of investor interest in highway concessionaires after a drought of initial public offerings (IPOs) of infrastructure assets on Bursa.

Instead of the traditional route of listing the holding company, Permodalan Nasional Bhd (PNB), the parent company of PLKH, carved out four of its six highways concessions and injected them into a business trust. The reason given is that a business trust’s dividend payout would not be constrained by accounting profit or even loss.

The four highways owned by Prolintas Infra BT are the Ampang-Kuala Lumpur Elevated Highway (AKLEH), Guthrie Corridor Expressway (GCE), Lebuhraya Kemuning-Shah Alam (LKSA) and Sistem Lingkaran-Lebuhraya Kajang (SILK). The highways are valued at RM1.05 billion, based on the 95 sen offer price and an issued unit base of 1.1 billion.

The IPO only involves an offer-for-sale of up to 468.7 million units by PLKH to raise RM445.3 million. The company will retain a controlling stake of 51% in the business trust.

The Damansara-Shah Alam Elevated Expressway (DASH) and Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), which were completed in 2022 and 2023 respectively, are not included in the IPO because they are in the early stage of operation. Typically, it takes five to seven years for highway concessionaires to break even at the Ebitda (earnings before interest, tax, depreciation and amortisation) level.

“Initially, we [PLKH] wanted to go for an IPO back in 2016/17 after we acquired the Kajang SILK highway. But it was shelved because there were changes in policies in 2018. At the time, we were already quite advanced in our IPO process. Then the Covid-19 [pandemic] happened and we decided to focus on completing the construction of SUKE and DASH instead,” PLKH group CEO Datuk Mohammad Azlan Abdullah tells The Edge in an interview.

“The listing of the business trust took more than three years as there were several steps that we needed to go through to find a win-win for the government, highway users and the company.”

To facilitate the IPO, PLKH has restructured the concessions of the four highways, extending their concession periods by reducing toll rates.

“For the IPO to be viable, we had to extend the concession period and meet the dividend payout. The move also saves the government at least RM5.2 billion in subsidies and the rakyat gets lower toll rates,” says Azlan, who has been at the helm for seven years.

The new supplemental concession agreements for the four highways were signed in October 2022.

The toll rate for AKLEH, the first highway undertaken by PLKH, was reduced by 15% while its concession period was extended by eight years to May 2037. The toll rates for GCE, LKSA and SILK were cut by 8% and the concession periods extended by 26 years, 15 years and 25 years respectively to 2062.

According to Azlan, the next toll hike will take place only in 10 years’ time, instead of three to five years as stated in the previous concession agreements. In the event that the government wants to freeze toll hikes, there will be compensation.

After it restructured the highway concessions, PLKH embarked on refinancing the debt held by the four highways, making sure their operating cash flow was fit for a business trust.

In January, Bank Pembangunan Malaysia Bhd (BPMB) granted Prolintas Managers Sdn Bhd, the manager of Prolintas Infra BT, a 24-year loan of RM2.7 billion. About RM2.4 billion has been earmarked for the refinancing of the existing debts of the concession companies, while the remaining RM300 million is capital expenditure for the construction of a new interchange for GCE and lane widening for SILK.

Malik Parvez Ahmad, CEO of Prolintas Managers, notes that Prolintas Infra BT was offered a lower profit rate of 5.3% versus 6.2% previously. More importantly, there will not be any repayment of the loan principal in the first 12 years.

“The reason is that we will have a toll hike in the next 10 years, which will be a boost to revenue. Two years after the toll hike is when we will start paying our principal,” he says.

With the repayment scheme granted by BPMB, it helps to free up Prolintas Infra BT’s cash flow for regular dividend payments. 

As a result, Prolintas Infra BT is not issuing new units to raise fresh capital.

“When you do an issuance of new shares, you normally want to settle some debts. We have done our debt restructuring. The debt that we have at the moment is actually matched to the concession agreement that we have extended. There’s no need for us to raise fresh capital,” Malik explains.

Prolintas Infra BT’s payout policy is to distribute at least 90% of its distributable amount annually.

For the financial year ending Dec 31, 2024 (FY2024), the highway trust is committed to paying out RM70 million, which translates into 6.3 sen per unit, giving an implied yield of 6.7% based on the IPO price of 95 sen.

Prolintas Infra BT’s forecast Ebitda for FY2024 stand at RM206.99 million, while its combined net operating cash flow is estimated at RM47 million, according to the IPO prospectus.

Nonetheless, its cash holding is expected to balloon to RM456.79 million at end-2024 from RM404.1 million a year earlier, as the government compensation received in 2022 and 2023  under the previous concession agreements for the freeze in toll hikes in 2021 helped to boost its coffers substantially.

Analysts see the cash pile of more than RM400 million as a comfort to investors, assuring the trust’s regular dividend payments. Of course, this assumes no major disruptions to the toll operations, as well as prudent cost and cash flow management.

Based on unaudited figures in the prospectus, Prolintas Infra BT generated net operating cash flow of RM129.66 million in FY2023. Its net operating cash flow was even higher at RM236.27 million in FY2022, compared with RM80.5 million in FY2021, mainly because the government’s compensation shot up to RM147.7 million that year.

As at Sept 30, 2023, the highway business trust’s net debt amounted to RM1.82 billion, while it had a cash balance of RM348.46 million, according to its IPO prospectus.

Prolintas Infra BT’s net losses have drawn much attention. They also provide the rationale for the business trust.

“A business trust can operate like a normal company, but when it declares dividends, it does so by way of distributable income — it doesn’t go according to profit and loss. As an infrastructure company, it is normal for it to take on amortisation and impairments, which have a significant impact on the bottom line,” says Azlan.

The four highways collectively recorded a net loss of RM256.95 million on revenue of RM228.57 million for the nine months ended Sept 30, 2023 (9MFY2023). The loss was wider than the RM9.6 million in the previous corresponding period.

The four highways collectively posted a net loss of RM13.56 million in FY2022.

The amortisation and finance costs are more than RM100 million each. Excluding these, toll roads operate on relatively high Ebitda margins. Prolintas Infra BT’s Ebitda amounted to RM165.35 million for 9MFY2023, RM268.85 million for FY2022 and RM259.45 million for FY2021, the prospectus shows. Its Ebitda margins for the period in review were between 70% and 72.3%.

There are a few cornerstone investors for the IPO, namely Yayasan Pelaburan Bumiputera, Lembaga Tabung Haji (5.5%), AIIMAN Asset Management (5.4%), AHAM Asset Management (1%), Maybank Asset Management and Kenanga Investors.

PNB’s investment funds are also among the cornerstone investors. Their subscription amount is not known.

A business trust is not the type of investment that offers exponential growth.

An analyst points out that, while he feels the upside potential for the highway business trust is limited at the current level as the highways are already mature, the dividend yield of more than 6% is attractive in the current market conditions.

“Assuming that the business trust is looking at about 3% to 5% annual traffic growth, we are looking at about a 5% increase in the total dividend payout. Nonetheless, the challenge for the group is to ensure that it meets its traffic growth projections, especially with the upcoming public transport projects and the removal of the petrol subsidy that could impact traffic flow,” he says.

Malik says the group is taking on a more conservative stance in its annual traffic growth at a compound annual growth rate (CAGR) of about 2% to 3%. This is lower than the CAGR of 4.6% between 2023 and 2027 in the Frost & Sullivan Independent Market Report on the highway concessionaires industry in the Klang Valley.

“There are other ways to maximise revenue, including the growth of the non-toll segment. For instance, the rest areas and potential future acquisitions,” he adds.

Malik points out that the group is not in a rush for acquisitions. Should there be one, it would need to meet certain criteria, including traffic flow forecast, cash flow and value added proposition.

Nonetheless, Azlan acknowledges that the listing of the highway business trust will give some leg room for PLKH acquisitions. “The acquisitions can be at the group level or the business trust. It depends,” he says. 

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