Monday, July 13, 2009

Reply on PLUS Compensation and Comments On Research House Report

I have received a written reply on the question on the compensation of PLUS as follows;


Minta Menteri Kerja Raya menyatakan jumlah pampasan yang dibayar kepada PLUS pada tahun 2008 dan jumlah pampasan yang perlu dibayar oleh kerajaan kepada PLUS pada tahun 2009.


Untuk makluman Ahli yang Berhormat, jumlah pampasan yang telah dibayar kepada syarikat konsesi PLUS berikutan penangguhan kenaikan kadar tol yang sepatutnya pada 1 Januari 2008 adalah berjumlah RM185.42 juta. Pampasan ini dibayar secara 2 peringkat iaitu 50% pada tahun 2008 dan baki 50% pada tahun 2009 setelah mengambil kira jumlah trafik sebenar.

Manakala jumlah pampasan yang dianggarkan perlu dibayar kepada syarikat konsesi PLUS pada tahun 2009 adalah sebanyak RM195.0 juta.

Maklumat tambahan

Kenaikan kadar tol bagi Lebuhraya Utara-Selatan sepatutnya berlaku pada 1 Januari 2008 iaitu daripada 13.60 sen/km kepada 14.96 sen/km. Walau bagaimanapun, kenaikan ini telah ditangguhkan dan jumlah pampasan yang telah dibayar adalah sebanyak RM185.42 juta. Seterusnya, kenaikan yang ditangguhkan pada tahun 2008 sepatutnya berlaku pada 1 Januari 2009 tetapi sekali lagi terpaksa ditangguhkan dan jumlah pampasan adalah dianggarkan sebanyak RM195 juta.

The answer is confusing compared to what is reported in PLUS financial statement.

From the PLUS financial statement, for the period of 1 January 2008 to 31 December 2008, the compensation payable to PLUS is RM730.9 million. For the period of 1 January 2009 to 31 March 2009, the compensation payable as reported in PLUS financial statement is already RM187.2 million.

As such, the figure reflected in the quarterly reporting and annual report conflicts with the answer provided.

In addition I would like to comment on the recent article by DBS Vickers research on nationalizing PLUS. The article was titled as follows and the following are some excerpts;

PLUS nationalisation will cost RM30b, says DBS Vickers

The government is most unlikely to invoke an expropriation clause in the toll concession agreement to nationalise PLUS Expressways Bhd as it could involve shelling out a total of RM30 billion for such an exercise, said Singapore’s DBS Vickers Research.

DBS Vickers Research estimates the potential loss in profit for PLUS until the end of its concession in 2038 (discounted at a weighted average cost of capital of 6.5%) plus the assumption of debt meant that the government would have to shell out RM30 billion to nationalise PLUS.

DBS Vickers Research said “a partial toll rate increase of 5% every three years (versus the scheduled 10%) would generate FCF (free cash flow) yields after interest of 3%-16% and a DCF (discounted cash flow) value of RM3.22 vs our base scenario which generates FCF yield of 4%-25% and DCF value of RM4.22”.

It said this would likely be accompanied by additional tax and cash benefits or waiver of government loans.

“Regardless of the options taken, we think it will be at least NPV (net present value) neutral for PLUS given its majority shareholder Khazanah (Nasional Bhd), with 64% ownership, is still government-owned,” DBS Vickers Research said.

Comments : As such, it is clearly not viable to utilize the expropriation clause to nationalize PLUS. The article then proposes to acquire via Khazanah as follows;

Another option is a privatisation via Khazanah. “Assuming privatisation price at our target price of RM3.80 and assumption of PLUS debt less cash, (it) will work out to be RM15.7 billion.”

DBS Vickers Research said privatisation was unlikely as it “will likely anger East Malaysia BN (Barisan Nasional) component parties which control 40% of the total BN coalition”, with other cost and priority issues overhanging it.

Given that the focus is on two stimulus packages, a bond issuance of RM15.7 billion would not be easily absorbed, it added.

DBS Vickers Research said even without a privatisation now, PLUS’ near-term yields of 5% was still a key reason to maintain a buy call on the stock at RM3.32. It has a 12-month price target of RM3.80 for PLUS.

This is supported by resilient traffic volume growth of 3.2% in the first four months of the year (1Q09 3.1%), which has decoupled from 1Q09 GDP growth of -6.2%. The stock rose four sen to RM3.26 yesterday.

Comments :

The research house says that it is unlikely for the Government to acquire as it will anger the East Malaysia. Firstly, I doubt this will happen, as PLUS will continue to collect toll and the income earned will be used to offset the interest cost and repay the bond.

I didn’t propose that tolls are abolished. I have stressed that the reason for acquiring is to ensure toll hike is equitable and done only when necessary.

As such, I still believe that acquiring PLUS is not a bad deal financially. This is because even though PLUS is majority owned by Khazanah, we do not have any figures to support the fact that when Khazanah has been receiving dividend from PLUS the dividend back was given back to the government. There is a possibility that the dividend is utilized to subsidize some of the loss making operation within Khazanah. Also the sum of toll compensation has been increasing yearly up to RM730million in year 2008.

Lastly, if it is not financially viable to acquire the shares of PLUS, why would the research house then recommends a buy rating on the share? Wouldn’t it be contradicting? Furthermore at the start of the article the research house mentioned that if the toll rates are raised 5% every three years instead of 10%, the NPV of the project would be RM30billion.

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