Analysts say toll highway consolidation a very costly deal

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Pricing and funding posers for Asas Serba

PETALING JAYA: Pricing and funding will be the biggest hurdle if Asas Serba Sdn Bhd were given the green light by the Government to take over all the 22 toll concessions in the country, say analysts.

“How to price the toll concessions? If we take the water consolidation in Selangor as an example, there are already many issues despite the fixed pricing at one-time book value,” OSK Investment Bank analyst Jeremy Goh told StarBiz in a telephone interview.

The discounted cashflow (DCF) value could be an alternative method but given that it was based on future earnings, the seller would lobby the positive assumptions for future income to get the best price, while the buyer saw the negative ones, he said.

A bank-backed research house said in a report that taking into account the DCF value of PLUS Expressways Bhd alone could boost the value of the company to over RM20bil.

The acquirer would also need to consider the bonds issued by concessionaires totalling RM26bil if it wanted to take over all 22 toll concessions, which would bump up total costs.

The little-known private entity is represented by Datuk Syed Md Amin Aljeffri, chairman of Kuala Lumpur Malay Chamber of Commerce; Ibrahim Bidin, president and CEO of Pinelabs (M) Sdn Bhd and former PLUS chief operating officer; Wan Kamaruddin Wan Mohamed Ali, former director of Babcock & Brown and Fieldstone International; and Syed Budriz Putra, CEO of Sepang Aircraft Engineering Sdn Bhd. It was reported recently to have submitted a proposal to the Government to take over toll concessions.

Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, however, denied receiving such a proposal from any party and added that the Government was still mulling over the options to take over PLUS that would be affordable and comfortable for consumers.

Meanwhile, Goh said the concessions had contributed signficantly to their respective owners like Gamuda Bhd and IJM Corp Bhd, whose construction business was impacted by the downturn.

“The toll concessions are important to the owners, and therefore, the price has to be very attractive for them to give it up. The combined worth of PLUS and Litrak (Lingkaran Trans Kota Holdings Bhd) is about RM17bil. The question is, how high can the buyer offer?” he said.

“Even if the buyer could afford a high price, Asas Serba indicated that it would reduce toll rates by 20%, which means it would be slapped with a high breakeven point. It would be a costly deal for them,” he added.

OSK said the option of a government takeover, meanwhile, would defeat the purpose of privatisation in the first place. This would not be viewed positively by bondholders or investors, and raise uncertainty over the sanctity of concessions in the country, it said.

An analyst at a local brokerage said consolidation, theoretically, took place to minimise wastage of resources but this was not relevant for toll roads.

“Consolidation of toll concessions will reduce competition, which may not be in the best interest of the public,” he said, adding that the Government might want to retain control over these concessions to protect consumers, especially in rate adjustment.

A second analyst from a bank-backed brokerage said the first generation toll concessions were mostly lop-sided in favour of the concessionaires. “The Government should invest in building roads or highways, rather than pay huge amount of subsidies for disallowing toll rate hikes,” he said.

He said to compensate for the lower toll rates of 20%, Asas Serba was likely to seek a longer concession period. Even then, it would be tough to raise the entire amount.