Puncak seems open to negotiations over takeover of water assets

by **Cals** Fri 11 Apr 2014, 14:32

Business & Markets 2014

Written by AmResearch

Friday, 11 April 2014 10:30

Puncak Niaga Holdings Bhd
(April 10, RM2.94)
Maintain hold with target price of RM3.40: Puncak Niaga executive chairman and major shareholder Tan Sri Rozali Ismail said the group will call for an extraordinary general meeting soon to present to its shareholders the proposal and offer from the federal government to take over the water concessionaires in Selangor.

According to a newspaper report, Rozali said he did not object to the implementation of Section 114 of the Water Services Industry Act 2006 (WASIA) if it was for “the national interest of the country and in accordance with the existing law and provisions under the Federal Constitution”.

He also said he believed that Puncak Niaga’s major and minor shareholders would prioritise the interest of water consumers in the Klang Valley and national interest over commercial considerations.

Nevertheless, he appealed to both the federal and state governments to consider the investments that have been put in by the shareholders of Puncak Niaga into Puncak Niaga Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).

These include: (i) Puncak Niaga assuming RM1.25 billion (including interest) of debts to the state government, and RM4.8 billion owed to water treatment plant (WTP) operators during the privatisation exercise; (ii) Syabas spending over RM2.8 billion to finance water supply projects; (iii) Puncak Niaga spending RM1.7 billion to build Sungai Selangor plant Phase 2 and refurbishing WTPs for RM350 million; and (iv) Puncak Niaga investing RM270 million in Syabas via shares and loan notes.

In our view, Rozali’s statement hints that the group is still open to negotiations to facilitate the restructuring of the water assets in the state. After all, the invocation of Section 114 only allows taking control of operations, and not the transfer of asset ownership.

We opine that the commercial approach based on a consensus valuation is still the most viable option to resolve the long-standing issue. Note that previously the takeover of water assets in other states were concluded at one times book value. We maintain “hold” on Puncak Niaga. — AmResearch, April 10

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This article first appeared in The Edge Financial Daily, on Aprill 11, 2014.