Tuesday, March 3, 2009


A) Shareholder of PLUS

Based on the 2007 annual report the major shareholders of PLUS are as follows:

UEM Group Berhad is a wholly owned subsidiary of Khazanah Nasional Berhad. Taking into account the government agencies (EPF and Khazanah), the government has an effective interest of 74% in PLUS. Assuming the shareholding structure of the government agencies remains and no additional PLUS shares has been issued or converted from bonds the number of shares in the open market or free float shares amounts to approximately 1,297,514,414 (Round up 1.3billion shares).
B) Price of acquisition

Based on the price chart above the highest closing price for PLUS is not higher than RM3.40. Assuming a share price of RM3.50 to RM4.00 per share is offered for the acquisition of the remainder shares, the total acquisition price is between RM4.55billion to RM5.2billion. The offer price is 21% to 38% higher than 10/02/09 closing price at RM2.90 and 3% to 18% higher than the highest closing price for PLUS.

With the acquisition of the remaining shares from the open market, PLUS would be delisted as it would not meet Bursa listing requirements. The remaining shares could be acquired via Khazanah or UEM Group Berhad and it should not be difficult to obtain waiver from acquiring the 10% stake from EPF. Upon completion PLUS is take over as the Government would hold 90% stake while the public through EPF would hold 10% stake.

C) Reason for acquisition

1. Good returns and avoid ‘leakages’

Based on the recent review of the toll agreement, there have been numerous claims that the agreement are lop sided and only beneficial to the toll concessionaire. Through the take over of PLUS the Government and EPF would be the ultimate beneficiary. Dividend income or revenue sharing to be received could then form part of the Government operating budget or a similar structure to Petronas could be established.

The accumulated profit before tax from financial year end 2004 to 2007 is RM4.26billion and RM2.08billion if toll compensations are excluded. Based on the media report the total cost of construction for the PLUS highway is RM5.94billion. Simplistically the return on the highway to PLUS is 71% (profit before tax/total construction cost) when the toll compensation is included and 35% if the toll compensation is excluded translating into average return of 17.75% per annum or 8.7% per annum for the latter during the 4 year period.

Analysing the return on equity (ROE) (Profit before tax/shareholders equity) would indicate that the business is viable as the ROE is ranging from 22% to 24% inclusive of toll compensation and 10% to 13% if toll compensation is excluded. Profit before tax is used in the calculation for easier computation as income generated through the concession is tax exempt hence taxation has minimal impact.

As PLUS is guaranteed to be profitable through the various terms and compensation the acquisition of the remaining shares would not be detrimental to the Government. Currently the benefits of PLUS is also shared with 25% minority shareholders and any major decision taken would require the board to take into consideration the welfare of the minority shareholders.

2. Requirement to increase toll every three years can be waived or minimised

The concession agreement was signed in 1988 and is for 50 years thus ending in 2038 unless there are extensions.

The toll rate currently is set at 14.96sen per km and by 2038 the toll rate is expected to increase until 29.16sen per km which is double. As PLUS is listed and have minority shareholders, waiver or reduction of contracted toll increase would pose some problems. Furthermore the PLUS is expected to increase the toll rate in January 2009 and if the toll is not increased the compensation expected to be paid by the Government is approximately RM180million.

However with the acquisition of the remaining free float shares from the market, the shareholders of PLUS would comprise of the Government and EPF. With only two parties holding the stake in PLUS i.e. Government and EPF, the impending decision of toll increase every three years can be waived or minimised. From the financial aspect, if you analyse the profit and loss statement of the PLUS for the financial year 2004 to 2007, it indicates that PLUS have generated a profit of RM400million to RM600million yearly even if the gross compensation from the Government for not increasing the toll is excluded. Meanwhile the cash flow generated from operations excluding any receipt from Government compensation for not increasing the toll is RM1.1billion to RM1.4billion yearly from 2004 to 2007.

This clearly shows that if PLUS is take over and held by the Government and EPF the possibility of waiving toll increase can be carried out both financially or legally. Even if there is any toll increase it would not be based on contractual rates but more to sustain operations of the company and for loan repayment purposes.

3. Options for the toll compensation owed to PLUS

The latest quarterly reporting figures show that the government owes PLUS RM1.7b as at 30/09/08. If the amount is being fully paid, the Government has a few options ;

- The amount can be used to pare down debt and hence reduce interest cost. Any savings in interest cost can be channelled back to reduce debt. Based on the financial results for 30/09/08 the calculated interest rate per annum is approximately 6%. The expected interest savings is RM105million yearly if the amount received is channelled towards repayment of debts.

- Distributing the repayment of RM1.7billion to shareholders of PLUS. The distribution through dividend or capital repayment based on the new shareholdings structure would be RM1.5billion to the Government and RM200million to EPF. The dividend received would reduce the acquisition price of the Government to RM3.02billion (RM4.55billion – RM1.53billion) assuming offer price RM3.50 per share and the bumper payment of RM170million to EPF can be distributed to the contributors.

4. Possible toll reduction in the future

As at 30/09/08 the long term borrowings of PLUS amounts to RM9.4billion and the dividend announced for financial year 2007 is RM700million. If yearly dividend announced and received is assumed to RM700million and the entire amount is channelled for repayment of debts, PLUS can settle the long term borrowing in 14 years based on the financial results as at 30 September 2008. There should not be any problems on the short term borrowings as the cash and cash equivalent of the company as at 30 September 2008 is RM2billion while the current liabilities is RM1.3billion.

With the reduction in borrowings the cash flow savings and expenses is estimated to RM454million yearly based on 2007 financial figures. This would reduce the cost of operations of PLUS and hence a reduction of toll fee is possible.

5. Easier implementation of measures that are ‘people friendly’

As the shareholders are only the Government and EPF, decision making would be faster and new measures can be implemented to assist the people;

a) Providing a smart tag with touch and go card for every vehicle with a minimum deposit.

The cost of each smart tag with touch and go card is assumed to be at RM75 and the deposit to be placed is RM20. The initial capital cost for providing smart tag would be high but if the distribution is done in stages this would alleviate the strain on the company. The implementation of all lanes using smart tag would also reduce the company’s staff cost and overhead (air conditioning work place, cashier machine) for ticket collection and receipt of money. The staff can be transferred to other department like setting up top up counters at rest stops for easy reload or for administrative work. In the long run it would beneficial for the company as providing the smart tag would be ’one-off only’.

Assuming there are 15million registered vehicles on the road and if vehicles maintains an average balance of RM50 monthly the total amount cash in advance received by PLUS would be approximately RM750million!!!. Not only this improves the cashflow of PLUS, on a daily basis PLUS would be able to earn interest income of approximately RM61k or RM1.8million per month assuming interest rate is 3%p.a.

b) Providing discount during non-peak periods in the daytime

PLUS has announced some travel incentive package effective 1 January 2009, which includes a 10%+10% discount for off-peak travel during festive season and travelling time between midnight and 7am as well as a 5% rebate for heavy electronic toll-payment users.
The expressways involved are NSE, NKVE, FHR2, SPDH and Elite. Calculations by Aseambankers indicate minimal impact from these incentives. As it is only for a two-year period, total earnings loss is about RM40mil. The 5% rebate would translate into a “revenue loss” of just RM2.6mil annually.

Hence, as a gesture of goodwill, with the take over of PLUS, the government could vary the discount provided or offer more incentive accordingly to control traffic during festive period instead of limiting only to midnight which has poses many health, security and safety issues.

c) More efficient tag reader and tag lanes

With smart tag being the official tag reader for all highways it puzzles lots of users on the effectiveness of the smart tag that is prone to error reading which has cause many long queues especially during peak hours. Some funds should be allocated to provide smart tag readers and smart tag lane that are both efficient and effective similar to Singapore and london whereby cars do not need to slow down to enable the tag to respond. We are always proud of Malaysia’s technological advancement hence problems like this should not exist and should have been resolved especially since smart tag is the designated tag used for all highways.


In summary by acquiring the remaining shares of PLUS, the Government and EPF being the shareholder of PLUS would be able to establish policies and measures to ensure that the rakyat are not burdened due to legal requirements and avoid the Government from incurring additional toll compensation every three years. Politically it would create transparency and at the same time mitigate some of lop sided terms in the agreement.

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