Will Everyone Win With ALR’s Takeover Offer?

The toll industry has been in a flux for some time. A suitable solution to alleviate the Government of Malaysia (GoM) from their burden of paying toll subsidy annually is the issue. For 2021 it was RM2.25 billion.

ALR’s proposed solution and offer is supposed to address this and it suggests the following:

(i) ALR’s concession toll rate would be maintained at the present rate until the end of concession, i.e., no more toll hikes — significantly benefiting the motoring Rakyat;

(ii) The GoM no longer needs to pay any toll compensation subsidy either, since ALR’s new concession rate is equal to the present toll rate — thus saving GoM RM4.3 billion (net of tax waiver).

(iii) This valuable savings can then be further spent on other urgent development expenditure. 

The savings to the motoring rakyat of the highways are [as underlined in table 1]. (as based on TheEdge Report on Apil 6, 2022)

For example; a KESAS user only pays RM2 instead of RM3 at each of Toll Plaza. Saving of RM1or 50% savings. Similarly, a SPRINT (Pantai) user only pays RM2.50 instead of RM4.50; a saving of RM2 or 80% savings.

ALR’s total enterprise value is lower than the 2019 offer by RM720 million. The primary reason for the difference is because ALR’s offer is dated two years after the previous offer. The cash flows from those two years would not be included in ALR’s discounted cash flow valuation.

ALR’s proposal has no recourse to the GoM, i.e. there is neither a GoM guarantee nor any implied financial undertaking by the GoM, to the providers of funds to ALR.

ALR is obligated to redeem its funding (Sukuk) as soon as it can and must return all the four highway concessions back to the GoM.

Higher actual traffic achieved will reduce actual extension.

The offer is valid until April 30, 2022 and will be fully financed by sukuk. Post-acquisition,

the highways will not see future toll hikes, but the concession period will likely be extended by five to 10 years for the concessionaires except for SMART, whose concession period may be shortened.

According to PublicInvest Research, Gamuda’s equity value of RM2.33 billion is considered fair and in line with the research house’s valuation of RM2.28 billion for the four highways, although slightly lower than Pakatan Harapan’s RM2.36 billion offer in 2019.

Who is ALR Bhd? In an announcement by Gamuda Bhd, which owned four highway concessions, ALR Bhd is described as a “not for profit” entity. Is this a social or “charity” organisation?

Neither the government announcement nor the ALR website states how the selection was done. That is the problem! Transparency for a RM5.5 billion transaction is missing. Then how do they make any money? How are they going to raise Sukuk? No equity outlay? Can an independent financial advisor confirm matters?

References:

Gamuda says everyone wins with ALR’s takeover offer, Mohammed Rashdan Mohd Yusof, TheEdge CEO Morning Brief, April 6, 2022

RM2.3 bil cash from highway sale seen handy for Gamuda infra bids, Syafiqah Salim,  TheEdge CEO Morning Brief, April 6, 2022

Kiniguid: Who is ALR, how will it take over 4 Klang Valley highways? Aidila Razak, Malasiakini, April 5, 2022