What Do People See in PLUS?

What Do People See in PLUS?

The Cabinet has approved the takeover of Gamuda highways, according to the Finance Minister Lim Guan Eng in Budget 2020 speech. Under the plan, the Government offers to acquire four toll concessionaires - Sprint, Kesas and SMART owned by Gamuda and Litrak where Gamuda has 44% stake in it for RM6.2bil. According to Lim, the financing, operations and maintenance cost would be entirely funded by the collection of toll and congestion charges. Congestion charges would be lowered by up to 30% of the present toll rates during near peak and normal hours and free during off-peak hours.

Meanwhile, Widad Business Group joined in the race to take over the PLUS highway with proposal submitted on 9 Oct 2019. There are now one proposal for the buying over of Gamuda highways and four takeover of PLUS on the table.

Maju Holdings Sdn Bhd, on the other hand, had put in a bid to take over the PLUS highway in 2017, and then submitted a fresh one this year. This is a revised proposal to the government. This is after RRJ Capital, a Malaysian-led Hong Kong-based private equity group who offered to take over PLUS for RM3.5bil earlier in October.

The key points of the four proposals are as below:

Khazanah	RRJ Capital	Maju Holdings	Widad Business Group
- Forming a SPV “Highway Trust” - Takeover PLUS for RM30.8bil (Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) for RM3.1bil; Gamuda for RM5.6bil; and IJM Corp Bhd for RM2.7bil) - Raise fund via debt papers	- Fully takeover for RM3.5bil - Toll discount up to 30% based on new cars’ price tag - Modernise PLUS: smart tolling system, A.I. to replace current toll gates	- Fully takeover including debt outstanding (enterprise value) for RM34.90bil (PLUS still has RM30.2bil debt to pay*) - Reduction in tolls from 25% to 36%, subject to extension of concession period - Waive of RM2.7bil in toll compensation owed by the Government - Invest about RM5.3bil to improve the highway (e.g. lighting)	- Two options: 1. 51% takeover of Khazanah shares for RM1.5bil; 2. Fully takeover for RM3bil - Reduction in tolls from 25% to 40% - 50% discount for toll fares during festive seasons - Waive of RM2.7bil in toll compensation owed by the Government - Refurbish rest stops, implement A.I. technology - No retrenchment of staff for at least 5 years

*According to The Malaysian Reserve (4 April 2019)

According to the Edge (11 Oct 2019), for the financial year ended Dec 31, 2018, PLUS posted a loss of RM93.53mil (FY2017: loss of RM114.8mil) from RM3.83bil (FY2017: RM3.9bil) revenue. As of Dec 31, 2018, PLUS had accumulated losses of RM4.59bil.

So, what do they see in PLUS?

PLUS is a matured investment. It is an operating entity. With experience in operating MEX highway, Maju Holdings seems to have an advantage. It is less difficult in managing an operating entity.

Tan Sri Abu Sahid Mohamed, the Group Executive Chairman of Maju Holdings, had mentioned several times on the issue of PLUS’ high maintenance cost. In 2017, he accused PLUS Malaysia Bhd of having leakages and wastage that is affecting the highway operator’s bottom line. “I pay RM18 to resurface one square metre of my highway (MEX), everyone pays about that. But PLUS pays about three times more,” he told The Edge, adding that PLUS pays RM58 for resurfacing one square metre. PLUS’ published operating expenditure is 35% whereas MEX’s opex is ranging from 12% to 19% (The Malaysian Insights, 26 Sept 2017).

During an interview with The Malaysian Insights, Abu Sahid claimed that he saw a way to bring down the cost. “Their cost should be cheaper. They have a long highway. There is economies of scale. The bigger, the cheaper.”

RRJ Capital chairman Richard Ong, on the other hand, thinks that the highway is “old-fashioned”. People have to slow down to pay for toll due to the current toll gate system. He believes a smart tolling system equipped with A.I. technology would transfer PLUS into high technology and automated highway.

“If the government entities holding on to PLUS cannot take the opportunity to create more value, perhaps they have no business holding on to it. They should just accept the offer, realise profit and reinvest in other more potentially lucrative investment,” said Salahuddin Hisham from TheMole.

To be fair, all three private parties who intend to acquire PLUS see cost savings, new capex and improvements in toll management. Why can’t the assets be owned by the Government entities while the operations are managed by the private sector with specific KPIs?

Reference:

1. Budget 2020: Cabinet OKs MoF plan to take over four highways, 11 Oct 2019, The Star

2. Highway decision likely today, 11 Oct 2019, TheEdge Financial Daily

3. PLUS over-paying for maintenance, says Maju Holdings boss, 17 Oct 2017, FreeMalaysiaToday

4. No toll hike if I get PLUS highways, says Maju Holdings’ Abu Sahid, 26 Sept 2017, The Malaysian Insights

5. Widad Group offers to buy PLUS Expressways Berhad, 10 Oct 2019, FocusMalaysia

6. RRJ Capital ups offer price for PLUS to RM3.5b; aims to modernise highways, 7 Oct 2019, New Straits Times

7. Better cross-eyed than blind on PLUS highway deal, http://mole.my