Group willing to accept longer concession period for PLUS highways if deal successful
PETALING JAYA: Maju Holdings Sdn Bhd is open to an extension of the existing concession agreement for PLUS Malaysia Bhd’s highways – should it succeed in its endeavour to take over the toll concessionaire.
Businessman Tan Sri Abu Sahid Mohamed, who controls Maju, said the diversified group was open to the option, but only if the Government wanted it and if the highways required upgrading works.
“It all depends on (PLUS’) books, the future traffic flow and basically, if the traffic level of the highways reaches Level 4 before the end of the current concession agreement in 2038,” he told StarBiz in an interview.
Level 4 highways refer to expressways with a heightened level of traffic that result in traffic congestion.
This would often lead to the Government asking the concessionaires in question to upgrade the highways involved, and in return, the concessionaires may take up a longer concession period for the highways they operate.
“If the highways don’t reach Level 4 before the end of the concession period, it would be illogical to even ask us (to upgrade the highways) ... the Government has to be fair to us,” Abu Sahid said.
Generally, by extending the period of a concession agreement, a toll concessionaire would be able to spread out its cost over a longer timeframe.
Maju, which itself owns and operates the Maju Expressway (MEX) which links Putrajaya, Cyberjaya, KLIA and KLIA2 with Kuala Lumpur, had last week put in a proposal to the shareholders of highway operator PLUS, namely, sovereign wealth fund Khazanah Nasional Bhd’s unit, UEM Group Bhd, and state pension fund Employees Provident Fund (EPF), to take over their stakes in PLUS.
UEM has a 51% stake in PLUS while the remaining 49% is held by the EPF.
“We sent them the proposal last week, we have not heard anything ... we didn’t put a deadline on the proposal but you cannot wait for so long. Internationally, it’s 60 days (to get a reply),” Abu Sahid said.
While the RM36bil proposal, which includes a promise that toll rates for PLUS highways will not be increased for the next 20 years, has received its fair share of scepticism, Abu Sahid insists that his bankers and advisers have done a thorough analysis, which included the assumption of a traffic growth of between 3% and 5%.
“The analysis shows that it (the proposed deal without a toll rate hike) can be done.
“We have the financing all in place, including the reserve cash that we have to set aside to take over the highways,” said Abu Sahid.
Asked about the basis of his proposal, he replied candidly: “I am a businessman, I want to make money and ... do some national service.”
US-based Evercore is the financial adviser for the Maju group.
While detractors believe that the PLUS highways should remain in the hands of the Government, Evercore chairman (Asia) Stephen CuUnjieng, who was also present at the interview, argued that the Government was currently “on the hook” for guaranteeing the bonds that were being used to finance the PLUS highways.
“That’s why there is a triple A guarantee on the bonds because there’s a guarantee by the Government, and hence, some contingent liability (on the Government). At the very least, if the proposed deal goes through, that goes away ... so that’s an immediate tangible benefit to the Government,” he said.
According to him, Maju’s offer to the current shareholders of PLUS, at a return of 20%, was also a “very rich return”.
Furthermore, with PLUS’ major debt repayments coming up in 2020, this could mean that its surplus cashflows will be reduced and the potential for dividends being paid out to its shareholders will also be lessened.
“This could mean that (ultimately) EPF contributors will not receive the level of dividends that had previously been distributed.”
In the past five years, a total of RM3.6bil in dividends has been paid out to both the EPF and UEM, Abu Sahid said.
Of this, a total of RM720mil and RM815mil were paid to its shareholders in 2016 and 2015, respectively.
To be sure, currently, PLUS’ cashflow is still strong and more than enough to service its debts. Its free cashflow was in excess of RM1.1bil between 2013 and 2015, which also allowed it to declare dividends to its shareholders.
Abu Sahid said even without a Government guarantee, should the deal go through, the business itself would remain regulated.
“It’s not like the Government will cease to regulate ... they monitor us like a hawk even now ... if you don’t cut the grass (along the highways), they will ask you to do it.
“If you don’t, they will do it and they will charge you three times the amount ... there’s no love, no favour ... (in this industry),” he said.
Under his proposal, Abu Sahid has also claimed to be able to bring down the cost of operating and maintaining the PLUS highways.
Saying that he was unaware of PLUS’ current cost per km, he said Maju’s MEX highway’s cost, which includes the maintenance cost, could reach up to RM600,000 per km, which is considered quite high.
“Because we are urban, short (26km) and elevated, but PLUS, with its economies of scale, should have a lower cost. I can bring it to an even lower level.
“In the highway business, the cost that kills you is maintenance, which includes resurfacing, the most expensive component,” said Abu Sahid.
“But if you run the business efficiently, you can cut a lot of the costs. For example, for our MEX, we have done our resurfacing although we are not due to do it yet. But if I were to wait for the potholes to surface, it will cost more ... so I do it now. The next time I do it again, it won’t cost too much.”
PLUS is the largest highway concessionaire in the country, operating eight expressways under five concessions.
Its highways are the 772-km North South Expressway, which runs from Bukit Kayu Hitam in Kedah near the Malaysia-Thai border to Johor Baru; the New Klang Valley Expressway; Federal Highway Route 2; the Seremban-Port Dickson Highway; the North-South Expressway Central Link; the Malaysia Singapore Second Link; Lebuhraya Butterworth-Kulim and Penang Bridge.
Abu Sahid has proposed to acquire PLUS for RM36bil, including taking over RM30bil of PLUS’ debts. This is the second private-sector offer for PLUS in recent times after ex-Renong Bhd chief Tan Sri Halim Saad’s offer three years ago.