Friday 29 Mar 2024
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KUALA LUMPUR: Puncak Niaga Holdings Bhd is likely to be in limbo over its water assets which it has agreed to divest to Pengurusan Air Selangor Sdn Bhd (Air Selangor) as part of the state’s water industry consolidation. 

According to Selangor Menteri Besar Mohamed Azmin Ali, the sale and purchase agreement (SPA) that Puncak Niaga and Air Selangor entered into in November last year for the former to sell its water treatment and distribution assets is void now after the state government had declined to give a third extension to the master water agreement, which lapsed yesterday. 

“Yes [the asset sales would be void], they (federal government) have to decide what to do [next],” said Mohamed Azmin when asked if Puncak Niaga’s divestment would be affected as the master water agreement has expired. He told The Edge Financial Daily this outside the Parliament lobby yesterday.

The master water agreement was signed between Mohamed Azmin’s predecessor Tan Sri Abdul Khalid Ibrahim and Minister of Energy, Green Technology and Water (KeTTHA) Datuk Seri Dr Maximus Ongkili last year. 

Mohamed Azmin explained that when he came into office in September last year, he made it clear that he would honour the water agreement signed by his predecessor, Abdul Khalid.

“I want to move forward [but] it is very unfortunate, the federal government has failed to honour the [master water] agreement. In fact, they have breached the agreement, so what choice do we have?” he said.

Mohamed Azmin explained that the state government had given ample time to KeTTHA for reviewing the master water agreement. “The federal government breached the contract, and we have given them ample time for them to look at it and to negotiate and try to conclude the master agreement from Feb 9 to March 9.

“I think enough extension has been given to them and I think now we will have to take a very stern action against the federal government for not complying with the agreement that was signed in September last year,” he added.

Puncak Niaga’s share price fell 3.6% or 10 sen to RM2.70 yesterday on news that the state government did not intend to extend the master water agreement, resulting in a void in the SPA for water assets sales. 

Puncak Niaga has received shareholders’ approval for the divestment of an entire equity interest in Puncak Niaga (M) Sdn Bhd (PNSB) and 70% equity interest in Syarikat Bekalan Air Selangor Sdn Bhd or Syabas to Air Selangor, a wholly-owned subsidiary of Kumpulan Darul Ehsan Bhd for RM1.55 billion cash. 

According to Puncak Niaga, however, all conditions stipulated in the SPA were not fulfilled at the extended deadline on March 9 because there were still pending issues related to the water assets transfer between the Selangor state government and the federal government as well as the consent from Unit Kerjasama Awam Swasta in the Prime Minister’s Department on the sale of Syabas was still pending.   

Water-related stocks are expected to remain volatile in the near term due to uncertainties following the lapse of Selangor’s master water agreement, said analysts.

“The news came as a surprise as we were expecting the deal to be smooth. The latest development is something negative to the water sector and water-related stocks,” said an analyst.

“These stocks will be volatile in the near term. The companies can’t do much about it (the master agreement) but to wait for further clarity,” he said, adding that there would be more volatility in the share price if the federal government keeps quiet on the matter.

The analyst said the master agreement is something that will affect the water-related companies in the long term. 

He added that the lapse of the agreement did not only affect water asset owners, but also raised uncertainties for those companies involved in the Langat 2 project.

Langat 2 water treatment plant contractors include Salcon Bhd (fundamental: 2.1, valuation: 2.4), Ahmad Zaki Resources Bhd (fundamental: 0.55; valuation: 1.8) and MMC Corp Bhd (fundamental: 1.0; valuation: 1.8).

Another analyst noted that the latest development on the water agreement was mainly “political-driven” and the outcome of it will be hard to predict.

“There are uncertainties of the outcome. It is still uncertain to what extent water-related stocks will be affected,” he added.

 

This article first appeared in The Edge Financial Daily, on March 10, 2015.

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