Selangor water saga: Three down, one more to go?

by **Cals** Tue 20 May 2014, 09:05

[size=32]Selangor water saga: Three down, one more to go?[/size]

[size=13]Posted on 20 May 2014 - 05:37am
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Rupinder Singh
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[size=14]PETALING JAYA: The Selangor water assets restructuring exercise is one step closer to finalisation following reports last Friday that Puncak Niaga Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) have agreed to accept the state government's takeover offer.

This leaves Gamuda Bhd's Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) as the only water concessionaire in the state still holding out on a deal.

Konsortium Abbas Sdn Bhd (Abbas), the other concessionaire, had previously agreed to the state's offer.

"The federal government has decided to postpone the enforcement of Section 114 of the Water Services Industry Act 2006 (Wasia) as there no need to enforce it on Selangor's water utility firms. This decision is also supported by the Selangor government," Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili and Selangor Mentri Besar Tan Sri Khalid Ibrahim said in a joint statement in confirming the latest development last Friday.

As at press time yesterday, no formal announcement has been made by Puncak Niaga Holdings Bhd and Gamuda to Bursa Malaysia.

On May 12, Khalid gave the concessionaires until last Friday to agree to the deal.

According to the statement issued last Friday, the offer is exactly the same as the one made in February 2014 and last November 2013, namely that the buyout for PNSB will cost the state government RM2.47 billion, RM3.11 billion for Syabas and RM990 million for Abbas.

Based on PNHB's FY13 audited accounts, AmReasearch estimated that PNSB is being offered at 1.3 times its book value of RM2 billion, while Syabas is being offered against a negative book value of RM2.04 billion (less RM1.4 billion based on Puncak Niaga's 70% stake in Syabas).

It noted that water assets in other states were acquired at about 1 times of their respective book values.

The offers, however, will still be subject to shareholders' approval in EGMs to be held soon.

According to the statement last Friday, both governments will now resume talks on the sale and leaseback agreements.

However, at this juncture, AmResearch said it is unclear if PNSB would retain its operation and maintenance (O&M) licence once the assets are transferred or it would be given to a special purpose vehicle under the state government.

There is also no clarity on the timing of the signing of the Heads of Agreement (HoA) between the two governments," it noted.

With the latest acceptances, Splash is the last player needed to end the water saga. A disparity of valuation disfavouring Splash based on the current offer however is still a thorn in the side of Gamuda.

"Recall that Gamuda has rejected the latest offer as the equity payment for Splash was only RM250 million, which is 10% of its net book value of RM2.54 billion as at end-Dec 2013.

AmResearch said while the latest acceptances are a move closer towards a resolution of the water impasse, the ultimate closure still hinges on an acceptance by Splash.

"As such, we opine that a fair valuation for Splash would remain crucial to push the restructuring exercise to its final resolution," it said.

"Our fair value for Gamuda (buy, RM5.25 per share) reflects a 10% discount to Splash's net book value of about RM2.5 billion as at end-Dec 2013," said AmResearch which was neutral on the water sector.

Meanwhile, its fair value of RM3.40 per share share for PNHB remained unchanged as the valuation is based on the current offer.
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