Bondholders to meet today

Selangor water distribution concessionaire Syarikat Bekalan Air Selangor Sdn Bhd’s (Syabas) bondholders are expected to meet today to deliberate on serious issues which include the company’s cash flow and ability to meet payments, sources said yesterday.

A source said one of the larger bondholders had initiated the meeting to get a clearer picture of the financial position of Syabas, a 70%-owned subsidiary of Puncak Niaga Holdings Bhd, following last month’s news that a breakthrough in the proposed restructuring of the state’s water assets was within reach.

“Bondholders want to know if Syabas’ actual estimates of trade receivables have snowballed. They want to know if it can meet payments to suppliers and contractors,” the source told The Edge Financial Daily. It is learnt that the bondholders included Great Eastern Life Assurance and CIMB Group.

The source said bondholders were concerned about Syabas’ balance sheet and the status of the water compensation due from the Selangor government.

“They may want to discuss whether compensation will be forthcoming by year-end. They’d like to know the legal options that Syabas has, including the possibility of an out-of-court settlement,” he said.

The source noted that bondholders were aware that the state’s water assets and liabilities could be acquired for just over a one-time book value.

He pointed out that although the scheduled 37% water tariff hike by the state government had not been implemented since January 2009, Syabas’ parent Puncak Niaga had slapped the state with more than a RM300 million claim in water tariff compensation as per the concession agreement.

Puncak Niaga, which also owns Puncak Niaga (M) Sdn Bhd (PNSB), recorded a net profit of RM38.31 million for its first quarter ended March 31, 2010, which was marginally lower than the RM39.28 million posted a year earlier.

The group’s revenue rose 7.8% to RM478.35 million from RM443.77 million while basic earnings per share were flat at 9.37 sen versus 9.6 sen previously.

A source said the actual amount owed by Syabas remained a question mark to bondholders although some industry observers believed the figure owed to water treatment players could have ballooned to between RM700 million and RM800 million due to debts inherited from Perbadanan Urus Air Selangor Bhd (PUAS).

“They (bondholders) are optimistic of a possible joint offer by PAAB (Pengurusan Aset Air Bhd) and the state government,” the source said.

Syabas gets treated water from the other concessionaires for distribution to Selangor and the Federal Territories of Kuala Lumpur and Putrajaya.

The saga of the intended consolidation of water assets in Selangor has stretched over the past two years following the surprise takeover of the richest state by Pakatan Rakyat (PR) in the March 8, 2008 general election.

The new state government had, shortly after the general election, opted to provide to each household the first 20 cubic metres of water free of charge.

In a move to pre-empt a tariff hike and takeover of assets by the federal government, the PR-led state government early last year made a formal takeover offer for the four water concessionaires — Syabas, PNSB, Syarikat Pengeluar Air Sungai Selangor Bhd (Splash) and Konsortium Abass Sdn Bhd.

It had proposed to take over their assets and pay them their invested equity at a rate of 12% return-on-investment which amounted to RM5.7 billion (RM4.6 billion worth of assets and RM1.1 billion worth of equity). However, the concessionaires rejected the offer.

Then in June 2009, the state government made a second offer, inclusive of liabilities, to Abass (RM946 million), PNSB (RM1.94 billion), Syabas (RM3.36 billion) and Splash (RM2.97 billion).

The combined offer of RM9.22 billion to acquire all the water concessionaires was accepted only by Abass in principle. A month later, Gamuda Bhd’s 40%-owned Splash accepted the takeover offer after the state government revised it to allow Gamuda Water to be retained as operations and maintenance (O&M) operator.

Last October, it was reported that the federal government-owned PAAB had started a due diligence exercise on the state water players. A month later, Selangor Menteri Besar Tan Sri Khalid Ibrahim announced that the state would give up its planned acquisition of the state’s water assets and was in talks with PAAB.

In December, Syabas and PNSB declined the state’s offer.

Then in March this year, PAAB made an “informal offer” to acquire all the water assets for RM10.3 billion. However, the water saga took a twist as Gamuda via Splash had in the same month made a RM10.75 billion offer to the federal and state governments to take over the state’s water concessionaires.

The following month, Gamuda realigned its offer to meet the spirit of the Water Services Industry Act 2006 whereby PAAB would own and carry all the water assets on its books and lease the assets to Splash to operate as O&M operator under a 30-year lease.

Last month, The Edge Financial Daily reported that the deadlock in the proposed consolidation of the state’s water assets may have been broken with all the parties involved close to agreeing on pricing and talks were focused on ironing out the O&M issues.



This article appeared in The Edge Financial Daily, July 7, 2010.