Newsbreak: Gamuda’s sale of highways to government may have fallen through

This article first appeared in The Edge Malaysia Weekly, on May 18, 2020 - May 24, 2020.

The LDP is one of the four highways owned by Gamuda and its 43.56% publicly traded unit Litrak

Photo by Abdul Ghani Ismail/The Edge

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MARKET talk has it that the plan by Gamuda Bhd and its 43.56% publicly traded unit Lingkaran Trans Kota Holdings Bhd (Litrak) to divest its highways to the government for RM6.2 billion may have been aborted.

Gamuda, directly and via Litrak, controls Lebuhraya Damansara-Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Lebuhraya Shah Alam (Kesas) and the Smart Tunnel.

Gamuda did not reply to queries on the matter by The Edge, while questions to the Ministry of Finance were not answered as well.

One of the questions posed to Gamuda was whether it would look for a new buyer for the highways if the deal was cancelled.

One high-level executive from the Ministry of Finance who spoke on condition of anonymity says perhaps The Edge should direct its questions to the Economic Planning Unit (EPU), which is under the Ministry of Economic Affairs.

“We are trying to revive the economy, not do deals,” the executive says in a phone conversation.

One source familiar with the matter says the transaction is certainly not going through. “It is not a priority, and there is no one pushing for it.”

To recap, the main proponent of the acquisition of the highways by the government was former minister of finance Lim Guan Eng, who tied up the deal with a plan for a staggered system of toll charges, whereby toll rates would be free during off-peak hours and congestion charges, as they were to be called, would be 30% lower during peak periods than the existing charges.

Even back then, Lim’s plan received a considerable amount of flak, with the likes of economist Muhammed Abdul Khalid, who was the economic adviser to former premier Tun Dr Mahathir Mohamad, openly opposing the acquisition. At a forum at Universiti Malaya last October, Muhammed said the RM6.2 billion would be better spent on education or public transport.

“The majority of people won’t see a single sen in benefit because the toll rates during peak hours will be the same,” he was reported to have said.

He added that the only discount people would get was if they travelled at midnight, and posed the question, “How many workers travel at midnight?”

Meanwhile, others deemed the price tag of RM6.2 billion too high.

In August last year, then deputy minister of finance Datuk Amiruddin Hamzah had said that the RM6.2 billion valuation for the takeover of Gamuda’s highway assets was not final, when questioned at the Islamic Finance Innofest 2019.

“If the due diligence process finds that the value is too low or too high, something must be done. The value is not final,” he was reported to have said.

Former prime minister Datuk Seri Najib Razak had highlighted that the Ministry of Finance’s decision to buy four toll highways for RM6.2 billion amounted to a RM2.82 billion windfall for Gamuda and its shareholders, and that the government would suffer a loss, which would increase the national debt, while highway users would continue to pay for the use of the highways after the toll concession period has ended.

Najib said the experts had pointed out that traffic on the four expressways had been declining since 2015 because of projects undertaken by the former Barisan Nasional government such as the Light Rail Transit and the Mass Rapid Transit and the abolition of the Federal Highway toll. The number of road users was expected to continue to fall after the intercity rail projects started operations.

The likelihood that the deal is off is increased by the lack of updates on it. The last bit of news on the proposed disposal of the highways to the government was in March when Gamuda announced its financial results for the six months ended January 2020. In its notes, the company said, “The group has agreed to dispose of all our interests in the four highways, namely Kesas, Sprint, Litrak and Smart Tunnel, to the government. Gamuda’s stakes in the four highways are valued at RM2.36 billion.

“The Cabinet under the previous Pakatan Harapan government had approved the acquisition as announced during Budget 2020. Due to the change in the federal government, the group awaits further direction from the Ministry of Finance on the status of this acquisition.”

Prior to that, the last announcement was in December 2019, when the construction giant announced to Bursa Malaysia that the cut-off date to negotiate and finalise the terms of the agreement on the acquisition was extended from Dec 31, 2019, to Feb 29, 2020.

To recap, this was the third extension — with the initial deadline on Aug 30, 2019, the first extension to Oct 31, 2019, and the second extension to Dec 31, 2019.

It is not clear whether Gamuda will hang on to its highway assets if the deal does not go through.

For its six months ended January 2020, Gamuda registered a net profit of RM348.79 million from RM2.19 billion in revenue. The company’s water and expressway concessions chalked up RM120.13 million in net profit on the back of RM243 million in revenue.

This means about a third of Gamuda’s profit and 11% of its revenue were from this segment.

As at end-January, Gamuda had cash and bank balances of RM1.78 billion, while on the other side of the balance sheet, it had long-term borrowings of RM3.07 billion and short-term debt commitments amounting to RM2.75 billion. It is also noteworthy that as at end-January, Gamuda had reserves of RM4.77 billion.


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