Splash-linked companies tumble on takeover offer


Share prices of companies linked to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) fell yesterday despite Selangor government’s offer to pay RM2.55 billion to take over the company.

The decade-old water deal is expected to finally come to a closure after the state government made the almost RM2.6 billion offer to avert a treated water crisis in a region with more than seven million people.

But Gamuda Bhd and Kumpulan Perangsang Selangor Sdn Bhd (KPS), which own 40% and 30% in Splash respectively, had hoped for a higher offer given Splash’s book value of RM3.54 billion and the amount of outstanding bills owed to the company.

Gamuda’s share price closed 4.12% or 16 sen lower yesterday at RM3.72, while KPS was down by 5.79% or 11 sen at RM1.79.

Taliworks Corp Bhd, an indirect party involved in the Splash affair due to flowings by the latter, also fell 10% or 13 sen to RM1.17.

The offer will provide closure for the consolidation and restructuring of the water industry in Selangor, Kuala lumpur and Putrajaya (Pic by Muhd Amin Naharul/TMR)

Over RM600 million in market capitalisation was wiped out from the three counters yesterday. Gamuda and KPS shares were suspended last Friday following the water offer deal.

Despite the unfavourable reaction, analysts expect the downturn in the share price to be short lived. They are optimistic that the counters will bounce back upon the completion of the deal.

Gamuda’s divestment in Splash will give the company an instant cash payment of RM760 million, while KPS gets RM570 million.

MIDF Amanah Investment Bank Bhd head of research Mohd Redza Abdul Rahman sees the payment of proceeds in cash as a boon to the com- panies involved due to its immediate benefits.

“If they can replenish the work (with the cash they can do a lot of things), then maybe the price will recover.

“But investors are also looking for it to be used to pay a bumper dividend. That could also be another reason for the prices to recover,” Mohd Redza told The Malaysian Reserve.

However, he said the comeback for Gamuda could be challenging.

The builder’s share price has declined by nearly 10% since the government announced its decision to scrap the multibillion-dollar high-speed rail link to Singapore.

“We will have to see how it will recover as some of the costs of the mega projects need to be slashed and others have to be postponed,” Mohd Redza said.

AllianceDBS Research Sdn Bhd analyst Chong Tjen San said concerns for Gamuda are abating as the renewed offer for Splash removes a key overhang for the stock.

Chong said although the offer is 23% lower than its book price, he expects Gamuda, KPS and businessman Tan Sri Wan Azmi Wan Hamzah to accept the offer as it was “fair enough” and will provide closure for an exercise which has dragged on for years.

“Recall the last offer to buy Splash in 2013 was a measly RM250 million, or 10% of its then book value,” he said.

CIMB Research analysts Sharizan Rosely and Kamarul Anwar highlighted in their note that the RM570 million upfront cash from the sale of Splash would increase KPS’ end of first quarter of 2018 cash of RM82 million by a whopping seven times to RM652 million.

“While the impact on earnings excluding the 30% share of Splash’s net profit and the potential impairment is significant, we believe this is likely to be mitigated by a potential special dividend,” they said.

The sensitivity analysis ran by CIMB Research suggested a hypothetical special dividend yield of 3% to 17% if between 5% and 30% of the RM570 million upfront sale proceeds were paid as special dividends, and a whopping 28% dividend yield if 50% of cash were paid as a bumper special dividend.

The offer by the Selangor state government will lapse on Friday.

If all parties agree to the offer, the acquisition will see state-owned entity Pengurusan Air Selangor Sdn Bhd making an upfront payment of RM1.9 billion upon signing the definitive agreement, with the remaining RM650 million to be paid in instalments over a period of nine years.

The acquisition of Splash by Air Selangor is undertaken as part of the consolidation and restructuring of the water industry in Selangor, Kuala lumpur and Putrajaya by the state and federal governments.

According to Bursa Malaysia statements, the transaction of sales and purchase agreement must be made before Sept 14, 2018.

It also stated that 50 million ordinary shares and 350 million redeemable unsecured loan stocks offers are valid until Aug 10, 2018.