AS the year 2011 comes near its end, the stock market will have to bid farewell to PLUS Expressways Bhd (PEB), the largest toll operator in South-East Asia which will be delisted from Bursa Malaysia next month.
The corporate exercise will soon be completed, as UEM Group Bhd and the Employees Provident Fund (EPF) the joint offerors for the assets and liabilities of PEB have confirmed over the week that they have crossed the final hurdle of their proposed acquisition of PEB. And that is, reaching a consensus with the Government on the revised terms of supplementary toll concession agreements for five expressways operated by PEB and Penang Bridge Sdn Bhd. (The proposed acquisition also includes an agreement to take over the assets and liabilities of Penang Bridge.)
The revised terms include five years of a toll freeze effective from 2011 for North-South Expressway (NSE), NSE Central Link (Elite), Malaysia-Singapore Second Crossing (Linkedua), Butterworth-Kulim Expressway (BKE) and Penang Bridge (P1B), and a slower pace of toll rate hike thereafter for all except P1B, the toll rates of which will remain the same through its concession period.
The new deal also involves the streamlining of the expiry dates for all the concessions to Dec 31, 2038, as well as a waiver of compensation owed by the Government (comprising the RM2.9bil current outstanding balance to PEB and up to RM3.6bil of future monies due from the five-year toll freeze).
At a recent press briefing, the EPF, represented by its head of capital market department, Rohaya Mohammad Yusof, said the new deal would not have any major impact on its dividend payouts and EPF contributors would continue to benefit from reasonable returns under the new deal.
According to Rohaya, the EPF foresees its investment in the toll concession to produce a dividend yield of between 5% and 6% over the concession period. Internal rate of return on its investment, on the other hand, would be at least 10% as per the national pension fund manager's guidelines.
Cash cow
When UEM Group and EPF complete their acquisition of PEB, the revised concession agreements and concession assets of the five expressways will be placed under a new company to be called Projek Lebuhraya Usahasama Bhd (PLUS). The latter will be a wholly-owned subsidiary of PLUS Malaysia Sdn Bhd, an investment vehicle in which UEM Group will own a 51% stake and EPF 49%.
The Government will have a “golden share” in PLUS to preserve its rights in strategic matters involving the country's national infrastructure projects.
PEB's overseas businesses in Indonesia and India will subsequently be parked under the stewardship of UEM Group.
It's still to early to predict is PLUS will one day make its comeback to thestock marketand as far as the new management is concerned, there is no plan for that as yet.
One thing, though, investors can still have access into this cash-cow business through the bond market.
According to UEM Group managing director and chief executive officer Datuk Izzaddin Idris, there will be new issuance of bonds even as PLUS enters into a new phase.
It is expected that PLUS will issue up to RM33bil worth of new bonds next month to finance its proposed acquisition of the existing toll concession operators, and pay off their outstanding debts.
Even though there is not much “exciting plan” per se at hand for the mature toll concession business in Malaysia, PLUS is expected to continue enjoying stable flows and sustainable returns from the toll operation.
Besides expecting a traffic growth of 3% per year, which is already a conservative estimate, for its expressways in Malaysia to generate increasing toll collections, PLUS might be looking at further growing its non-toll revenue such as through billboard advertisements to boost income.
There will also be continuous efforts to control costs to boost PLUS' bottom line, but expenses on the maintenance of expressways, especially in terms of ensuring safety, will not be compromised.
According to Izzaddin, the expenses on maintenance are expected to average in excess of RM800mil a year.
FBM KLCI member change
Meanwhile, with the impending exit of PEB from the equity market, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) semi-annual review in the weeks ahead will result in new members being admitted into the benchmark index to fill the void.
The FBM KLCI is made up of 30 largest companies by market capitalisation. These companies are also required to have a minimum free float of 15% and at least 10% annual turnover of their free-float shares.
PEB, with a market capitalisation of around RM22.2bil, currently ranks among the top 20 largest companies in the local stock market. It is an important component member of the benchmark index, and its going private will definitely create a huge void there.
According to some market analysts, oil & gas services provider Bumi Armada Bhd currently stands as one of the strongest contenders to be moved up the grouping of 30 stocks and be enlisted as a new component member of FBM KLCI 30 in the upcoming review.
The impending change will see the toll concession and construction sectors not being represented at all in the FBM KLCI, while the index weightages for oil & gas and consumer sectors will likely increase. Such adjustments, nevertheless, will unlikely have any major impact on investor sentiment towards individual stocks.
The only thing is that by next month, investors will have one less option of good, quality stocks in which to invest in the Malaysian stock market.
By CECILIA KOK, cecilia_kok@thestar.com.my
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