‘Market valuation norms’ please, Gamuda tells govt

KUALA LUMPUR (Feb 26): Gamuda Bhd has pledged to ensure that any takeover of its highway concessions is in line with “market valuation norms and practices”.

The construction giant announced to Bursa Malaysia yesterday it was in talks with the government in relation to the proposed takeover of four highway concessions.

“As the board of directors of Gamuda has a fiduciary duty to deliver fair and reasonable value to its shareholders, the company has to ensure that the proposed transaction will be based on market valuation norms and practices,” it said.

*A toll on highway concessionaires?

*Government in talks with Gamuda to acquire four highway concessions

The Employees Provident Fund, which owns 50% of PLUS Bhd, is the largest shareholder in Gamuda holding 11.88%, followed by Amanah Saham Bumiputra (4.99%), Perak Royalty (4.79%) and Kumpulan Wang Persaraan (4.14%).

Datuk Lin Yun Ling, who is Gamuda’s managing director, owns 3.04%.

When contacted, CIMB research analyst Sharizan Rosely told The Edge Financial Daily that Gamuda’s announcement yesterday provided clarity that the negotiations will likely be based on a “willing buyer-willing seller” basis.

“As a concessionaire, Gamuda is given a chance to substantiate the valuations of these highways, and negotiate a fair exit price, so it is a good sign. But to what degree that the negotiations will be done on a willing buyer-willing seller basis, we will have to wait for more details,” he said.

The Prime Minister’s Office last Saturday issued a statement saying it has begun talks with Gamuda to negotiate the acquisition of four highway concessions that the group has majority stakes in.

The four highways are Lebuhraya Damansara Puchong and Sistem Penyuraian Trafik KL Barat, which are owned by Gamuda’s 43.58%-owned Lingkaran Trans Kota Holdings Bhd; 70%-owned Lebuhraya Shah Alam; and, 50%-owned Smart Tunnel.

The announcement after The Edge Weekly reported in the latest issue that the government is seeking expropriation values from highway concessionaires to start its move to abolish road tolls in stages.

Upon successful takeover, the highways will introduce three tiers of usage — toll-free period between 11pm and 5am, full toll charges dubbed “congestion charges” during six peak hours in a day and discounted rates of up to 30% from existing toll charges for the remaining hours.

UOB Kay Hian Research analyst Vincent Khoo said Putrajaya should adhere to the exit clause based on the concession agreement to maintain the government’s integrity of governance and sanctity of contracts.

“We certainly hope the government would make the acquisition offer based on the concession exit clause, and I think there is a good case for the government to do so to avoid having policies that create turmoil to the capital market.

“We have already witnessed the capital market reaction from the various policy changes in 2018, whereby domestic reinvestments have fallen sharply.

“Based on our surveys with most of the foreign funds, we found that they have rated Malaysia as the least attractive market to invest, and policy uncertainty is the key factor,” he said.

Khoo’s valuation on the four highways is RM3.4 billion based on discounted cash flow methodology assuming a discount rate of 8%. In view of the uncertainty, he advises investors to wait on the sidelines for a clearer signal that confirms the government is engaging in arm’s length negotiation.

All said, with reference to the divestment of the group’s water assets to Pengurusan Air Selangor Sdn Bhd, some quarters opine that it might not be an easy feat for Gamuda’s board to ensure that the takeovers of its toll concessions are arm’s length transactions.

To recap, Gamuda has accepted a RM2.55 billion cash offer to buy its 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).

The offer price is a 28% discount to Splash’s net book value of RM3.54 billion as at June 30, 2018 compared with the valuation of one-time book value that Gamuda was seeking then. Nonetheless, the final offer was more appealing than the initial ones.

Khoo, however, said  the toll concession acquisition is different from that of the water asset acquisition.

“This is different from the water asset acquisition last year, the water issue has been dragged on for a long time, and during that time the Selangor state government was reluctant to approve the water tariff increase. But for toll, the concessionaires have the negotiation power to wait until they are satisfied with what the government offers.

“There may be situation where Gamuda will receive a discounted offer, as the market has priced in today (Feb 25), but I do not foresee an exceptionally steep discount.

“If so, it will dampen confidence in the capital market,” he said.

This article first appeared in The Edge Financial Daily, on Feb 26, 2019.

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