This article first appeared in The Edge Malaysia Weekly on December 16, 2019 - December 22, 2019
THE Cabinet is expected to meet soon to discuss the merits and demerits of several proposals to take over PLUS Malaysia Bhd. The effective word is “soon” as, at this juncture, nothing seems certain.
While some quarters say the meeting may be held on Thursday or Friday (Dec 19 or 20), others say there is no fixed date or that they are not aware of any such meeting.
The Edge has received an invitation for the lighting up of a Christmas tree in Lawas, Sarawak, on Dec 19. with Minister of Works Baru Bian as the guest of honour. And he seems to be busy in his home state of Sarawak for the following two days.
This would mean that the tête-à-tête among Cabinet ministers will likely be held after Christmas.
“There have been so many postponements of a decision. All the parties involved are powerful and have their respective strengths and weaknesses. I will not be surprised if a decision is not made any time soon,” a fund manager with a foreign house says.
There also seems to be some friction between the Ministry of Finance (MoF) and Ministry of Works (MoW).
MoW is involved as tolled roads are under the purview of the Malaysian Highway Authority (Lembaga Lebuhraya Malaysia), which is under its control. MoF is involved as its approval is required for any takeover or sale of government assets and funds.
The story so far
At an earlier meeting on Dec 9, the only consensus reached by the Cabinet was on Khazanah Nasional Bhd’s plan to maintain its ownership of PLUS and offer an 18% discount on toll charges, and for the scrapping of MoF’s plan to take over Gamuda Bhd’s highways, according to a source familiar with the meetings.
Khazanah, a unit of MoF, has 51% equity interest in PLUS while the remainder is held by the Employees Provident Fund (EPF).
“The PM didn’t like it [the proposal for the 18% discount by Khazanah and the takeover of Gamuda’s highways by the government]. It (the Khazanah plan) did not jive with whole idea of reducing government debt,” one ministerial source says.
The highways are the Shah Alam Expressway (KESAS), Damansara-Puchong Expressway (LDP), Sprint Expressway (SPRINT) and SMART Tunnel (SMART).
There are some who say that they are not aware of Khazanah’s plan being axed, and others highlight how Minister of Finance Lim Guan Eng had mentioned bits of Khazanah’s proposal — such as an 18% discount on existing toll charges, and the takeover of Gamuda’s highways by the government — in Budget 2020, which would make the plans difficult to derail.
To recap, the plan to sell PLUS was aimed at reducing toll charges, thus easing the burden of the rakyat, and slashing the government’s debt. The plan was included in Pakatan Harapan’s manifesto.
Perhaps this is why the proposal to take over the highways of Gamuda and its 43.56% publicly traded unit, Lingkaran Trans Kota Holdings Bhd, received much flak, as the government would have to fork out RM6.2 billion for the assets, thus increasing its debt. The proposal included imposing congestion charges, which would reduce toll payments by 30%, once the highways were taken over.
A former banker who is familiar with highway operations says he does not understand the merits of the deal. “We (the bank) funded them (Gamuda) to build the highway, we know the numbers.” (See “Government’s acquisition of Gamuda highways still up in the air” on Page 67)
The offers for PLUS
At present, apart from Khazanah’s proposal, there are four bids to take over PLUS. One is from businessmen, Tan Sri Halim Saad and Datuk Wong Gian Kui. At one time, Halim controlled PLUS via his flagship Renong Bhd and United Engineers Malaysia Bhd (UEM).
Until last week, they were said to be the front runners (see “The bids and the people behind them” on Page 66).
Another offer is by Tan Sri Abu Sahid Mohamad, whose Maju Holdings Sdn Bhd owns and operates the Maju Expressway Sdn Bhd, which links the Kuala Lumpur city centre with Cyberjaya and Putrajaya.
The other proposals are by Tan Sri Muhammad Ikmal Opat Abdullah of the Widad Business Group Sdn Bhd and private equity fund RRJ Capital, a private equity firm run by brothers Richard and Charles Ong.
When The Edge contacted Abu Sahid, he questioned the number of bids. “I was invited to bid. The prime minister asked me to put a proposal in, I don’t know about the rest.”
Thus far, the government has not spoken with one voice. The Minister of Economic Affairs Datuk Seri Mohamed Azmin Ali reiterated the statement by Khazanah managing director Datuk Shahril Ridza Ridzuan that PLUS is not for sale, but the prime minister and Baru seem to be in favour of the sale.
It is also noteworthy that Shahril has been almost adamant in not wanting the highway to be sold, which raises questions as well. The EPF’s CEO Tunku Alizakri Alias has been more forthcoming and said the pension fund will consider selling its 49% stake in PLUS should a good offer arise.
There is also the question of how PLUS is doing.
Weak financials
Checks on filings with CTOS indicate that PLUS, for its financial year ended Dec 31, 2018, suffered an after-tax loss of RM93.53 million from RM3.83 billion in revenue.
As at Dec 31, 2018, PLUS had total liabilities of RM32.8 billion and total assets of RM31.61 billion. It is also noteworthy that from 2014 to 2018, PLUS paid out almost RM3.2 billion in dividends. It paid out RM700 million in 2017 and RM450 million in FY2018 despite suffering losses.
As at Dec 31, 2018, it had accumulated losses of RM4.59 billion.
Considering this, can the companies succeed in their proposals, especially as some of them are not seeking any extension for their existing concession periods?
An aide of Halim says, “No one knows PLUS better than him (Halim),” when asked about the workability of Halim’s proposal, which does not require any extension of the concession ending December 2038.
In July, PLUS’ management had written to The Edge explaining some of the bad numbers in FY2017 and highlighting that the accumulated losses were a result of the privatisation exercise completed in early 2012. PLUS acquired all the assets and liabilities of five highway concessions at a fair value of RM23 billion and issued a series of bonds totalling RM30.6 billion to fund the acquisitions as well as the refinancing of all its previous borrowings. The acquisition cost of RM23 billion was capitalised in accordance with Malaysian Financial Reporting Standards, which is amortised to the income statement as a charge over the remaining concession period.
As such, as at Dec 31, 2017, an accumulated amortisation of RM5.46 billion was charged to its income statement, together with the total finance cost of RM9.18 billion over the six financial years, resulting in accumulated losses of RM3.98 billion in FY2017.
As for its penchant to pay dividends until 2017, out of the total dividends of RM4 billion made by PLUS to its two shareholders — UEM Group and the EPF — from 2013 to 2017, more than 50% of the amount (RM2.2 billion) was from the excess cash brought forward and the savings derived from PLUS’ refinancing exercise in January 2012.
Nevertheless, there have been questions on PLUS’ maintenance costs, which is supposedly three times more than some of its counterparts. In an interview with The Edge in 2017, Abu Sahid said that Maju’s maintenance cost for a square meter was RM18, but PLUS’ was three times higher.
Statements that the higher cost is due to the length of the North-South Highway, which is a key component of PLUS, and its age, do not hold water, according to contractors.
Lately, Halim has questioned PLUS’ financials, including its high annual operating expenditure of RM1.33 million per kilometre, and its high debt level of RM30.2 billion.
Halim also asked how it was that the highway concessionaire had only repaid RM700 million of the total RM30.2 billion debt between 2012 and 2018, despite collecting more than RM24.5 billion in toll charges.
“I do not see any increase or acquisition of new assets or reduction in liabilities. PLUS’ tax expense was RM476 million in 2010 (RM438 million in 2009), but nothing was recorded during 2012 to 2018. According to a RAM study, PLUS should pay RM1 billion in taxes annually.
“It is a mind-boggling question … where the money went. In addition, the government has outstanding guarantees of RM11 billion for a loan that will expire in the last year of the concession operation in 2038,” Halim said in October in response to PLUS managing director Datuk Azman Ismail’s statement that the highway operator was a debt-ridden company when Syarikat Danasaham Sdn Bhd took it over from Renong Bhd.
A bit of history
PLUS has five concessions. First is Projek Lebuhraya Utara-Selatan Bhd, which has under its umbrella the 772km North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and the Seremban-Port Dickson Highway.
The second is the Expressway Lingkaran Tengah Sdn Bhd, which includes the North-South Expressway Central Link. The third concession is Linkedua (M) Bhd, which owns Malaysia-Singapore Second Crossing. Fourth is Konsortium Lebuh Raya Butterworth-Kulim Sdn Bhd (Butterworth-Kulim Expressway) and last is Penang Bridge Sdn Bhd.
PLUS was incorporated in 1986 as Highway Concessionaires Bhd and changed its name to PLUS Expressways Bhd in 1988, after it won the concession to construct and operate the North-South Expressway, the New Klang Valley Expressway and a section of Federal Highway Route 2.
As a result of the Asian financial crisis of 1997, PLUS’ parent, UEM, and its sister company, Renong, crumbled under more than RM30 billion of debt.
In 2001, the government took over UEM with a voluntary general offer of RM4.50 per share and 40 sen per warrant, and UEM was subsequently delisted from the Kuala Lumpur Stock Exchange after a two-tier debt restructuring exercise resulted in PLUS’ debt being slashed to RM7.2 billion from RM14.8 billion.
Halim has always contended that he could have got out of the jam by listing PLUS and even went as far as suing Khazanah, former Second Finance Minister Tan Sri Nor Mohamed Yakcop and the government to honour a settlement agreement worth about RM2 billion but lost his case some four years ago.
The government listed PLUS on the Main Board of Bursa Malaysia in July 2002, and completed another debt restructuring by issuing RM2.3 billion Islamic bonds, which Halim contends he could have undertaken as well.
Nevertheless, there have also been many changes to the concessions. For instance, in 2004, the government ordered the abolishment of the Senai Toll Plaza, promising PLUS RM332 million in compensation, and as part payment of the compensation, PLUS took over the Seremban-Port Dickson Highway worth RM50 million.
In 2005, the government revised PLUS’ concession agreement, extending its concession term by eight years and seven months to December 2038 and forgoing RM1 billion in government soft loans to PLUS, for which PLUS financed the construction of additional lanes and route diversions of the North-South Expressway.
So, after 2020, will there be a change in shareholding at PLUS and will Halim get back his assets?
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