Gamuda expected to accept RM2.6b water deal offer for Splash

The current valuation is fair to resolve the 10-year water-restructuring impasse, says analyst


Gamuda Bhd, the biggest stakeholder of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), is expected to take the RM2.55 billion offer to buy out its water treatment assets by the Selangor state government.

MIDF Amanah Investment Bank Bhd head of research Mohd Redza Abdul Rahman told The Malaysian Reserve (TMR) that the current valuation is fair to resolve the 10-year water-restructuring impasse.

“I do think it is a fair price given the amount, as I do not know if the old valuation price will still hold today.

“The best way forward is for them to put it all under one entity so it can be managed better, rather than it being privatised,” he told TMR yesterday.

“If you look at what is actually being asked for, then yes it is less, but there are also different parts to it. Back then the state government and the federal government were at log- gerheads, so now is a good time to move on and concentrate on regulating water (industry) and ensure that any wastage is reduced,” he said.

Gamuda currently holds a 40% stake in Splash, while Kumpulan Perangsang Selangor Bhd (KPS) owns 30% and the remaining 30% is held by Sweet Water SPV Sdn Bhd, a private vehicle of businessman Tan Sri Wan Azmi Wan Hamzah.

Both Gamuda and KPS said they had hoped for a higher offer given that Splash’s book value is sitting at RM3.54 billion, while the last offer to buy Splash in 2013 was RM250.6 million, or 10% of its then book value.

The ongoing deal is part of a restructuring process of the state’s water industry that has been dragging since 2008.

The deal is said to have taken such a long period of time to conclude due to political disputes between the state and federal governments, as well as disagreements on valuation prices.

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

According to Mohd Redza, since both entities will be receiving a lump sum of cash, they can actually pay off their shareholders who will be expecting it.

Rakuten Trade Sdn Bhd head of research Kenny Yee said the offered price is the highest received so far, but it is hard to determine whether the value is “fair” as it depends on both the buyer’s and seller’s point of views.

“Generally, it will be a good closure for all parties for this last leg of water restructuring to be completed,” he told TMR.

Meanwhile, Association of Water and Energy Research Malaysia president S Piarapakaran said a fair valuation of the said price will depend on many factors, including the initial agreement that was made.

“The water industry is very different to the rest of the industries like developers or manufacturers. It is a necessity, as two-thirds of its users are domestic ones,” he said.

Piarapakaran is concerned about the liabilities that will come with the acquisition.

“There is no talk about liabilities that will be carried on to the state government after the buyout. At the end of the day, people need to understand that if a higher compensation is paid out, the added cost will be put on the tariffs.

“The RM2.55 billion will create a new debt plus a new liability, so overall it is an increase for the operation. The Selangor state has to be very transparent and the public needs to be aware of what’s going on,” he said.

Piarapakaran said the government will have the authority to invoke Section 114 of the Water Services Industry Act 2006, if the deal does not fall through.