This article first appeared in The Edge Malaysia Weekly on July 25, 2022 - July 31, 2022

IJM Corp Bhd is understood to have commenced talks with the government on the disposal of several of its toll highways in Malaysia to Amanat Lebuhraya Rakyat Bhd, say sources.

It is understood that meetings have taken place between IJM’s management and Senior Minister (Works) Datuk Seri Fadillah Yusof, but details are scarce. Fadillah did not reply to a text message from The Edge, possibly because IJM is a listed company and any announcement would have an impact on its share price.

“It is almost a done deal, but it [the sale to Amanat Lebuhraya Rakyat] could be done in two tranches,” says one of the sources.

Another source says the sale of the highways “has more or less been concluded in principle. But some minor issues may need to be ironed out. For instance, one of the government’s requirements for Amanat Lebuhraya Rakyat to buy any highways are for them to be fully constructed. But in this case, the construction of the West Coast Expressway will only be completed in 2024”.

West Coast Expressway is 80% owned by WCE Holdings Bhd, in which IJM has a 28.81% stake.

There have also been problems with the West Coast Expressway, which will stretch from Changkat Jering in Perak to Banting in Selangor when completed. It has suffered a loss of traffic since the Pakatan Harapan government gave an 18% discount on PLUS Highway Bhd’s toll rates starting Feb 1, 2020. This discount, which was not factored into West Coast Expressway’s concession agreement, has adversely impacted the amount of traffic that uses the expressway as it runs adjacent to the PLUS highway and is in competition with it.

Apart from the 233km West Coast Expressway, IJM has three toll highways in Malaysia — 100% equity interest in the 28.9km Sungai Besi Highway, also known as Besraya; 100% stake in the 19.6km New Pantai Expressway or NPE; and 50% shareholding in the 44km Semenyih to Seremban highway, known as the Lekas Highway.

While the three highways — Lekas, Besraya and NPE — are privately held, WCE Holdings is a publicly traded company. Other substantial shareholders of the company include Tan Sri Surin Upatkoon-controlled MWE Holdings Bhd with 27.85% and Tan Sri Pang Tee Chew with 10.14% held via United Frontiers Holdings Ltd.

IJM also has toll highways in India, two of which are operational — the 79km Chilakaluripet-Vijayawada Tollway and the 145km Swarna Tollway — and another two that are under construction — the 19.8km Dewas Bypass Tollway and 109km Solapur-Bijapur Tollway. In Buenos Aires, Argentina, the company has the 56km Western Access Tollway.

While it not clear how much IJM’s highways will be valued at, the West Coast Expressway has a 50-year concession that expires in 2063 while Besraya’s 44-year concession ends in 2040, the NPE’s 34-year concession in 2030, and Lekas’ 33-year concession in 2039.

If the sale of the highways go through, it will be the second major sale by IJM in the past two years. It sold its entire 56.2% stake in IJM Plantations Bhd to Kuala Lumpur Kepong Bhd for a cash consideration of RM1.53 billion last year.

For its financial year ended March 31 (FY2022), WCE Holdings suffered a net loss of RM115.48 million from RM606.91 million in turnover. In FY2020, the company suffered a net loss of RM92.34 million from RM375 million in revenue. For FY2022, it had accumulated losses of RM587.78 million.

As at end-March, WCE Holdings had RM412.28 million in deposits placed with licensed banks and RM13.07 million in cash and bank balances. On the other side of the balance sheet, the highway operator had long-term debt commitments of RM3.83 billion and negligible short-term borrowings, giving it a net gearing of 3.4 times.

For its financial year ended March 31, Besraya registered an after-tax profit of RM19.72 million from RM115.99 million in revenue. In FY2020, the highway operator chalked up an after-tax profit of RM51.7 million from RM153.56 million in revenue. FY2021’s results are likely to have been adversely impacted by the Covid-19 pandemic.

As at end-March, Besraya had total assets of RM1.1 billion and total liabilities of RM652.53 million. For FY2022, the company had retained earnings of RM366.21 million.

For its financial year ended March 31, 2021, NPE raked in an after-tax profit of RM36.59 million on the back of RM135.74 million in revenue. In FY2020, it managed to register an after-tax profit of RM77.95 million from RM177.75 million in revenue.

As at end-March 2021, NPE had total assets of RM593.69 million and total liabilities of RM111.64 million. For FY2021, the company had retained earnings of RM194.32 million.

Lekas has suffered losses for the last five financial years. For FY2021 ended March 31, the highway operator suffered an after-tax loss of RM80.88 million from RM65.09 million in revenue. In FY2020, it suffered an after-tax loss of RM57.56 million on RM88.06 million in revenue.

As at end-March 2021, Lekas had total assets of RM1.19 billion and total liabilities of RM1.85 billion. For FY2021, the company had accumulated losses of RM754.35 million.

In June this year, construction giant Gamuda Bhd finalised the sale of its stakes in four highways — Kesas Holdings Bhd, Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint Highway), publicly traded Lingkaran Trans Kota Holdings Bhd (Litrak) and Projek Smart Holdings Sdn Bhd (Smart) — for RM4.48 billion. It controls 70% of Kesas, 42.8% of Litrak and 50% of Smart. In Sprint, Gamuda directly holds 30% equity interest, while Litrak has 50%. The sale has yet to be concluded.

Amanat Lebuhraya Rakyat, which is being fashioned as a private, not-for-profit entity, will issue bonds to facilitate its acquisitions but will also require an extension to the various highway concession periods. Its takeover of Gamuda-controlled highways is said to bring about net savings of RM4.3 billion in toll subsidies.

IJM closed at RM1.73 last Friday, which translates into a market capitalisation of RM6.1 billion.

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