Should PLUS be left alone?

PLUS Expressways Bhd, it seems, has no shortage of suitors. The latest interest is speculated to be coming from the deep-pocketed Employees Provident Fund (EPF) even though its head of public relations has refuted this claim.

But the basis of the speculation does make sense. It does make sense for substantial shareholder Khazanah Nasional Bhd to look to monetise its holdings in PLUS by selling it to a cash-rich party looking for long-term investments, namely the EPF.

This scenario seems quite different from what had been recently proposed by two other parties seeking to take over PLUS. These parties were working on the premise that PLUS could be run more efficiently and, hence, lower toll rates could be in the offing, if they took over PLUS.

However, these parties would need to take on an enormous amount of debt in order to fund the acquisition of the highway operators. Asas Serba, one of the parties interested in PLUS, plans to raise some RM50bil, most of that via bonds, to finance its takeover of PLUS and other highways. The problem is, this could be difficult for the market to digest.

With the EPF, however, there will not be any need to raise cash, considering its fund size of more than RM400bil, which is still growing.

There is also the feeling that if PLUS goes to the EPF, then all the cash flows from PLUS will be channelled to the right party, namely the guardian of interest of the rakyat. PLUS’ free cash flows amounted to some RM1.5bil in the financial year ended Dec 31, 2009 (FY09), with some analysts reckoning it could hit RM1.9bil in FY12.

But, then again, is it the business of the EPF to end up as a controlling shareholder in a highway company? If it buys the shares in PLUS owned by Khazanah, and its unit, UEM Group, as it is being speculated, the EPF could end up owning more than 60% of PLUS, thereby triggering a general offer for the remaining shares.

In the past, the EPF had come under scrutiny for somehow ending up as the controlling shareholder of a few other companies. These include Malaysian Resources Corp Bhd, Malaysian Building Society Bhd and RHB Bhd.

While the EPF has managed to extract some value out of these stakes, it is still questionable if a pension fund should be saddled with running or overseeing the management of such large corporations.

Back to PLUS and the two earlier proposals to buy out the company. It has already been said that if there are other parties who claim to be able to run PLUS more efficiently (and therefore be able to lower toll rates), then shouldn’t the Government be looking at those proposals and making sure that the current management of PLUS implement them? This way, there will be no need for a third party to take over PLUS.

But, if the reason for PLUS being sold is for Khazanah to unlock value, then the situation is slightly different. However, don’t be surprised if Khazanah’s and UEM’s stake is sliced and diced and sold to the highest bidding instituational investors and not just one party.

# Deputy news editor Risen Jayaseelan wonders that if not for the socio-political issue concerning toll rates, would we be hearing about a PLUS takeover in these times?