This article first appeared in The Edge Malaysia Weekly on December 30, 2019 - January 5, 2020
WATER is essential to our lives. Thus, the breaking of the long-drawn-out deadlock between the Selangor government and Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH) last year came as a big relief to all Klang Valley residents.
SPLASH was the last of four privately-owned water concessionaires in Selangor to relinquish control of its water treatment assets due to a disagreement over price. The company is the concession holder of Sungai Selangor Water Supply Scheme Phase 1 and 3, which controls about 45% of the treated water supply in Selangor, Kuala Lumpur and Putrajaya.
Forty per cent of the company is owned by Gamuda Bhd, with Kumpulan Perangsang Selangor Bhd holding 30%. Sweetwater SPV Sdn Bhd, a private vehicle of businessman Tan Sri Wan Azmi Wan Hamzah, has the remaining 30%.
For most of the decade, the restructuring of Selangor’s water treatment and distribution had been a bone of contention between the Selangor government under Pakatan Rakyat and the federal government of the then ruling Barisan Nasional coalition. The latter had pledged to ensure that the water concessionaires would accept the acquisition offers made by the state.
The move to restructure the water services industry started in February 2008 when the Selangor government, under the then Menteri Besar Dr Mohamad Khir Toyo, gave the state’s investment arm Kumpulan Darul Ehsan Bhd (KDEB) the mandate to lead and consolidate the industry, which was operated by four different concession companies. The move was also in line with the Water Services Industry Act 2006, enforced on Jan 1, 2008, which was primarily enacted to restructure and improve the efficiency of the sector.
The restructuring involves concessions held by Puncak Niaga Holdings Bhd, SPLASH, Konsortium Abass Sdn Bhd and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), and covers seven dams, 35 water treatment plants and over 24,600km of pipes.
What was initially targeted to take a year turned into a lengthy affair, which finally ended exactly 10 years later. The decade saw three different ministers in charge of water, four menteris besar and a change in government.
Selangor managed to convince Puncak Niaga (M) Sdn Bhd, Syabas and Konsortium Abass to sell their assets for a combined RM6.59 billion in 2015.
The takeover of SPLASH was the last piece of the puzzle for the restructuring to come together in September last year, with KDEB-owned Pengurusan Air Selangor Sdn Bhd buying out the concessionaire for RM2.55 billion, or 0.72 times its book value.
SPLASH’s shareholders had rejected previous offers as unrealistic and had asked for the concessionaire to be valued at one times book value.
Gamuda’s 40% stake in SPLASH entitles it to RM1.02 billion. That compares with its share of SPLASH’s net book value, which comes up to RM1.42 billion.
Shares of Gamuda have declined by 2.6% since it announced Air Selangor’s takeover offer for SPLASH in August 2018. Its Dec 13 close of RM3.78 gave it a market capitalisation of RM9.35 billion.
Still, the Klang Valley’s water woes have yet to end with supply disruptions continuing to happen. In July, Selangor Menteri Besar Amirudin Shari admitted that the Sungai Selangor water treatment plants have not been properly maintained over the past 10 years.
National Water Services Commission chairman Charles Santiago was also reported as saying that the water pipes in Selangor require an upgrade due to the population increase, among other factors. Even though news that replacement contracts would be up for grabs helped prop up the shares of listed water-pipe manufacturers last year, will it take another decade for the state to end its water woes?
On top of the urgency to replace the network of ageing water pipes, there is also a need to increase the water supply capacity by building new dams and water treatment plants to meet the ever-growing demand for clean water. Yet, funding remains the key obstacle for the sector in ensuring sustainable long-term water supply. Investment is estimated to cost tens of billions, and the government’s tight financial position and political sensitivity when it comes to raising water tariffs means we may still have a long way to go to find a long-term solution while hoping a water crisis will not hit us anytime soon.
Tan Sri Rozali Ismail
Founder and executive chairman
Puncak Niaga Holdings Bhd
Known as Malaysia’s Water King, Rozali, 62, used Puncak Niaga Holdings Bhd to launch a RM14 billion lawsuit in 2017 against the Selangor government and former chief ministers Datuk Seri Mohamed Azmin Ali and Tan Sri Abdul Khalid Ibrahim over the long-drawn-out water restructuring exercise.
Puncak Niaga claimed that Abdul Khalid and Mohamed Azmin had abused their powers as menteri besar by threatening to cause the federal government to invoke the Water Services Industry Act 2006 to force the acquisition of the water services industry in Selangor.
Puncak Niaga had sought RM13.5 billion in damages and costs associated with losing business opportunities locally and abroad due to the suspension of negotiations on the restructuring efforts of the water industry for five years.
It had also sought damages on the difference between the value of PNSB Water Sdn Bhd (formerly known as Puncak Niaga (M) Sdn Bhd) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) of RM2.08 billion to RM2.35 billion, and the actual purchase consideration for its two water assets by Pengurusan Air Selangor Sdn Bhd of RM1.55 billion.
In March last year, Puncak Niaga said it was appealing against the Shah Alam High Court’s dismissal of the RM14 billion suit. However, the matter remains pending as the Court of Appeal is reportedly awaiting the Federal Court’s decision on whether the heads of state and federal government are considered public officers before it hears the appeal by Puncak Niaga to reinstate the suit.
With a 39.59% stake in Puncak Niaga, which has the biggest share of Selangor’s water sector, Rozali had initially rejected the Selangor government’s offers to buy out his water concessions PNSB and Syabas, but finally relented in 2015 when the offer was revised upwards to RM1.55 billion.
In 2013, Rozali’s salary package also stirred controversy. However, a group of Puncak Niaga minority shareholders, who claimed they represented over 100 shareholders or 20% of Puncak Niaga shares, defended his RM33.4 million remuneration package, saying he deserved it.
Puncak Niaga Minority Shareholders Watchdog Group chairman Muhammad Imran Abdullah pointed out that Rozali’s remuneration was approved at Puncak Niaga’s annual general meeting.
“It was tabled there and we approved it,” Imran said. “You must understand, this man is the founder of the company which started 20 years ago. For all his contributions, the shareholders have agreed to the payment.”
Following the disposal of its water assets in Selangor, Puncak Niaga’s water treatment business now mainly consists of its projects in China. The group has been loss-making since the financial year ended Dec 31, 2016 (FY2016).
For the first nine months ended Sept 30, 2019 (9MFY2019), the group saw its net loss widen to RM50.23 million from RM44.26 million a year ago on higher depreciation and amortisation expense and finance cost from the plantation segment and higher finance cost from the concession segment. This was despite revenue doubling to RM332.4 million from RM158.7 million in 9MFY2018.
Rozali is also the chairman and major shareholder of Pimpinan Ehsan Bhd, which assumed the listing status of TRIplc Bhd last year.
Tan Sri Wan Azmi Wan Hamzah
Chairman
Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH)
The prominent businessman played an instrumental role in ending the water restructuring saga in Selangor when his private vehicle Sweetwater SPV Sdn Bhd, which owns 30% of SPLASH, together with Gamuda Bhd (40%) and Kumpulan Perangsang Selangor Bhd (30%), accepted the state’s offer last year to buy out SPLASH’s water treatment assets for RM2.55 billion.
Wan Azmi, 69, had been vocal about his displeasure at Selangor’s initial three offers, rejecting them as being unfair and not taking into account the real value of assets under SPLASH.
Armed with his SPLASH proceeds, Wan Azmi re-emerged as a substantial shareholder in Eastern & Oriental Bhd (E&O) in March this year after Sweetwater SPV took up a 9.09% stake in the property company by subscribing to a private placement, buying 130.2 million shares at 98 sen a share, or total of RM127.6 million.
The deal marked the second time that the businessman is holding a large stake in the premier lifestyle property developer. Wan Azmi was a shareholder in E&O prior to selling his then 11.95% stake when Sime Darby Bhd bought a 30% block in E&O in 2011.
Wan Azmi’s re-entry had also raised market talk of whether he took up the private placement to help out his friend Datuk Terry Tham, another major E&O shareholder. “No friendship is worth RM130 million. If I’m putting in that sort of money, it’s because I think I’m going to get a fair return,” he told The Edge in an interview.
He said E&O appealed to him, not only because he was familiar with the developer, but also because of its prospects.
Then, in July, Wan Azmi and Gelombang Global Sdn Bhd (GGSB), a private vehicle of former Renong Bhd managing director Datuk Mohd Zakhir Siddiqy, agreed to inject a combined RM42 million in ailing Scomi Group Bhd.
The injection will be in the form of two loans of RM21 million each, which represents both parties’ commitment to subscribe to their respective commitments and excess undertakings. Upon completion of the rights issue and the proposed liabilities settlement, Wan Azmi’s stake in Scomi will increase from 0.75% currently to 5.98% under the maximum scenario, while GGSB’s stake will increase from 0.01% to 5.85%.
Wan Azmi is also chairman of Rohas Tecnic Bhd, which is also involved in utility infrastructure. For the cumulative nine months ended Sept 30, 2019, Rohas’s net profit rose 12.5% year on year to RM17.87 million on the back of a 34% y-o-y increase in revenue to RM342.16 million.
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