PLUS takeover not commercially viable


MAJU Holdings Sdn Bhd’s proposed takeover of PLUS Malaysia Bhd is not financially viable due to the heavy resultant debt and anticipated lower demand for highway assets in the long run.

An industry analyst said there is no commercial basis for Maju Holdings to undertake the deal, as the majority of the reported RM36 billion purchase consideration will be debt-driven.

“Maju Holdings does not have the coffers of a company like YTL Corp Bhd to undertake such large-scale merger and acquisition deals,” the source, who declined to be named, told The Malaysian Reserve (TMR).

The conglomerate, led by Tan Sri Abu Sahid Mohamed, reportedly had submitted a letter of intent for the highway asset earlier this month with an indicative offer in excess of RM36 billion.

PLUS Malaysia — which operates five concessions — is currently held by the Khazanah Nasional Bhd unit, UEM Group Bhd, who owns a 51% stake while the Employees Provident Fund (EPF) retains the remainding interest.

Based on reports, both Maju Holdings and PLUS Malaysia have confirmed that the bid was made.

“Even if the company manages to somehow finance 10% of the takeover, the remainder is largely going to come from bank borrowings,” the analyst said.

The analyst said the conglomerate may have to fork out RM2 billion annually to pay off the borrowings, assuming a 6% interest rate, which will be a financial burden for a relatively small player in the industry as the return on investment is unlikely to be favourable.

Maju Holdings presently retains an authorised capital of RM100 million and is also believed to have secured banking advisory firm Evercore Group LLC to aid in the deal.

The source who spoke to TMR said toll concession numbers are predicted to be lower in the long term on the back of more transportation networks coming online in Malaysia.

“While numbers are now trending higher in the toll concession business, the next five to 10 years will see a decline, due to new railway launches such as the Kuala Lumpur-Singapore high-speed rail.

“In the Klang Valley itself, we are seeing more public transportation lines commencing operations, thus taking more traffic off the road — I am convinced this trend will pick up steam and negatively impact toll operations,” the source said.

The five concessions under PLUS are Projek Lebuhraya Utara-Selatan Bhd, Expressway Lingkaran Tengah Sdn Bhd, Linkedua (M) Bhd, Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd and Penang Bridge Sdn Bhd.

It was reported that Maju Holdings intends to freeze toll rates until the end of the concession period, which is set to occur in December 2038, following the takeover.

Meanwhile, PLUS Malaysia shareholders EPF and UEM Group are expected to hold on to the asset due to the favourable returns, according to analysts.

“They have already locked in their purchase and enjoyed the upside of the investment, so why sell the highway asset now?” the anonymous source posed rhetorically.

“Only if an offer is made significantly above the valuation, would there be any motivation to dispose of the asset,” he said.

Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said, hence, there is no reason for either EPF or UEM Group to dispose of PLUS Malaysia due to the profits and contributions coming in from the asset, coupled with a steady volume and good cashflow.

“Any pension fund will want to hold onto this asset because it is difficult to find a replacement for an asset profile that readily suits the needs of a pension fund,” Pong told TMR.

If successful, the PLUS Malaysia sale to Maju Holdings is expected to reduce the government’s contingent liabilities by RM30 billion, while Maju Holdings is to forfeit a government compensation of approximately RM900 million owed to the toll operator.