Spotlight on water stocks

by **Cals** Mon 25 Nov 2013, 01:53

Published: Saturday November 23, 2013 MYT 12:00:00 AM
Updated: Saturday November 23, 2013 MYT 12:36:46 PM
Spotlight on water stocks
BY LEONG HUNG YEE
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High hopes: There is renewed optimism on the revamp of the water industry in Selangor.

Puncak Niaga Holdings Bhd’s shares closed 14 sen higher to RM3.48 yesterday, its highest in more than four years. Year-to-date, the counter has risen by a whopping 193%.
Kumpulan Perangsang Selangor Bhd (KPS) added six sen to RM2.26, while Gamuda Bhd, which has a 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), gained eight sen to RM4.89.
The Selangor state government made a fresh offer of about RM9.7bil, similar to the previous takeover offer, to acquire four state water concessionaires – Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abbas Sdn Bhd, Puncak Niaga and Splash.
AmResearch said the new offer was “not surprising”, as the state government had indicated that the terms and pricing would be similar to the previous one.
“We view the move as positive, as the stakeholders take another step closer towards resolving the water impasse,” it said, adding that the water assets would eventually be acquired by Pengurusan Aset Air Bhd (PAAB), while the state government through a special-purpose vehicle licence would lease the assets from PAAB.
“KPS is most likely to agree to the offer, while there have been reports that Puncak Niaga might seek for a higher return on equity (ROE) of 15%. There is also talk that Puncak Niaga might seek an arbitration process for the remaining amount it is seeking,” AmResearch said.
Affin Investment Bank Bhd said it would appear that the Selangor state government was falling back to its fourth offer, as this fresh fifth offer continued to price Puncak Niaga’s water assets at 12% ROE.
“As such, the total offer for the equity and water assets of the group’s 100%-owned Puncak Niaga water treatment plants and 70%-interest in water distributor Syabas amounts to RM5.6bil,” it said.
Affin expects Puncak Niaga to “continue to hold out for a higher asset valuation and may potentially turn down this fifth offer”, prolonging the attempted consolidation exercise. “Nevertheless, we opine that downside risk from the current share price level is limited, as it is not an overcrowded trade.”
On the surface, CIMB Research said the news was a “negative surprise”, as it had expected the relaunch of the takeover bid by the state government to be on revised terms. It said the media had recently reported that Puncak Niaga was negotiating for a higher ROE of 15% (versus the state’s offer of 12%) for the equity portion. “However, what appears positive at this point is that the new bid also clarified that the takeover of the water assets would also be satisfied via the assumption of the liabilities of Puncak Niaga (RM1.8bil) and Syabas (RM4bil) by PAAB.
“This leaves Puncak Niaga with an implied cash takeover bid of RM1.6bil for both Puncak Niaga and Syabas (70%-owned), net of debt. Based on this methodology, the implied value/share for Puncak Niaga’s water assets (excluding the oil and gas business) is RM3.80 (based on the current number of shares) and RM3.01 on a fully diluted basis,” it said.
Bernama quoted the Selangor Mentri Besar’s office as saying that the offer was the result of a series of discussions between the state government and the Energy, Green Technology and Water Ministry.
It said the offer letters were sent through Selangor state investment arm Kumpulan Darul Ehsan Bhd (KDEB) and required a response within 14 days, which is by 5pm the latest on Dec 4.
“The offer also states that KDEB would settle all arrears incurred by the four companies, including the relevant commercial bonds, loans and government loans,”Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim said.
Puncak Niaga, which owns five water-treatment concessions and a 70% stake in Syabas, said it had received two letters from KDEB offering to acquire the company’s water assets for RM5.58bil. The offer valued the group’s treatment plants at RM2.47bil and another RM3.12bil for its stake in Syabas.
KPS said it had also received an offer from KDEB to acquire Titisan Modal Sdn Bhdfor RM990.2mil. Titisan Modal owns 55% of Kumpulan Abass – the concessionaire for the Sungai Semenyih water supply scheme.
KPS also said that KDEB had offered to pay RM1.83bil for its 30% stake in Splash.
Gamuda, which has a stake in Splash, is also deliberating on the RM1.83bil takeover offer from KDEB. It said that an appropriate announcement would be made to Bursa Malaysia Securities in due course on the outcome of the deliberation.