Is PLUS’ Concession Not Lucrative?

 

The general perception is that PLUS Malaysia Bhd is sitting on a lucrative toll concession. The reality is toll collections are barely enough to cover expenses, including payments to bondholders and maintenance costs. A nagging question is how PLUS, which has been operating highways since 1988, has yet to fully redeem the bonds that were issued to fund the construction of the North-South Expressway.

It should be noted that PLUS’ concession was extended by 20 years following the Pakatan Harapan victory in the 2018 general election. This in turn resulted in the abolition of PLUS’ 18% tariff hike as per its concession agreement. 

PLUS spends RM400 million to RM500 million per year on maintenance. The Malaysian Highway Authority has a very high standard when it comes to the maintenance of expressways. As a result, the cost of maintaining the highways is high. The government, when it decided to keep PLUS with Khazanah Nasional Bhd (51% stake) and the Employees Provident Fund (EPF) (49%), sought to explain that there were several considerations, such as the terrain of the highway when maintenance costs are looked at. 

PLUS has not given decent dividends to its two shareholders over the years and the payment is not hefty because of its financials. A check with the Companies Commission of Malaysia reveals that PLUS suffered three straight years of losses, from FY2021 to FY2023. In FY2023 ended Dec 31, it suffered an after-tax loss of RM148.35 million on the back of RM3.63 billion in revenue. In FY2022, it suffered an after-tax loss of RM247.31 million on RM3.36 billion in revenue. At end-2023, PLUS had total assets of RM28.44 million, while its total liabilities were pegged at RM38.8 billion. The highway concessionaire had accumulated losses of RM10.41 billion.

 

PLUS has total debts of about RM30.2 billion. A significant portion of this, approximately RM11 billion, is guaranteed by the Malaysian government, substantially lowering the company's credit risk. The company has an RM25.2 billion Islamic Medium-Term Notes Programme with a AAAIS(s) rating and a stable outlook from MARC Ratings. This rating reflects a government Letter of Undertaking to cover any cash shortfalls, ensuring debt obligations are met. 

PLUS has five concessions under its belt. The first is Projek Lebuhraya Utara-Selatan Bhd, whose operations comprise the 772km North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and the Seremban-Port Dickson Highway. 

Traffic levels saw a post-pandemic surge, rising 7% year-on-year in 2023 and 3.5% in 2024. Future growth is expected to normalize to a historical range of 1% to 1.5% per annum from 2025. As of 2025, the toll fare for a Class 1 vehicle (car) from Kuala Lumpur to Penang is RM45.70, and to Johor Bahru is RM42.30. The current concession agreement does not involve any toll rate hikes for the next 20 years, with a key condition being the maintenance of current rates until the end of the concession period. 

The second concession is Expressway Lingkaran Tengah Sdn Bhd, the operator of the North-South Expressway Central Link. The third concession is Linkedua (M) Bhd, which owns the Malaysia-Singapore Second Link Expressway. The fourth is Konsortium Lebuh Raya Butterworth-Kulim Sdn Bhd, which operates the Butterworth-Kulim Expressway, and the fifth is Penang Bridge Sdn Bhd. 

PLUS has ample liquidity, reflected by cash and cash equivalents of RM3.9 billion as at end-July 2024 as well as strong cash flow generation that averaged RM2.1 billion p.a. over the past four years, provide the toll concessionaire with considerable capacity to meet projected capex and financial obligations over the next 12 months. PLUS expects to remain financially self-sufficient, projecting — under its base case — an average LoU FSCR of 3.18x with a minimum of 2.41x (FY2038) throughout the sukuk tenure, above the covenanted 2.0x. MARC Ratings’ sensitised case assumes zero traffic growth, under which the LoU FSCR could fall below 2.0x from year 2030 (FSCR of 1.8x) and would require the government support to cover the shortfall. However, as historically demonstrated, PLUS has the flexibility to adjust its capex plan as necessary to support its credit metrics. 

There is still a need for a restructuring exercise for PLUS – it has to sell loss-making entities (concessions) to third parties, reduce debt significantly and seek Government support (or cash infusion) to maintain long-term viability. Otherwise, there is no dividend to Khazanah and EPF – which is detrimental to EPF contributors! 

References:

Cover Story: PLUS’ concession not as lucrative as perceived, says UEM Group MD, Jose Barrock, The Edge Malaysia, 19 Dec 2024 

MARC Credit Analysis Report dated 6 November 2024