PLUS’ cash business is largely the reason behind the nascent interest by the many buyers
pic by MUHD AMIN NAHARUL
IF THERE is a medal for the most attractive company, then PLUS Malaysia Bhd is all but the outright champion.
In the last few weeks, the country’s largest highway concession holder was courted by more parties than the Miss Universe after her crowning.
Various bids and counterbids were submitted to the government, Prime Minister Tun Dr Mahathir Mohamad, the economic minister, the finance ministry, the highway’s major shareholders or any delivery boy who could deliver a document.
While the country sinks into a temporary slump with questions on the country’s economy and growth prospects, absence of clear policies, talks of succession and the floundering local stock market, which is the worst in the world among the modern equity platforms, PLUS has been the one bright spot.
Even during the recent tabling of the 2020 budget, PLUS grabbed the headlines.
The government announced an 18% discount on toll rates for North-Expressway (NSE) users, saving consumers RM1.13 billion next year.
A welcomed news for consumers, but an unexpected slap to its shareholders — Khazanah Nasional Bhd and the Employees Provident Fund (EPF), who had to redo their Excel earnings files.
Last week, Widad Business Group entered the ring for PLUS, offering to buy either a 51% or a 100% stake in PLUS from the two shareholders.
The little known construction company is offering RM1.5 billion in cash for the 51% owned by Khazanah or RM3 billion for the total shareholding.
The highways involved in the PLUS concession are the NSE, Second Link Expressway, Penang Bridge, North-South Expressway Central Link, Butterworth-Kulim Expressway and Seremban-Port Dickson Highway.
The company also offered sweeteners including remittances and reduction of toll rates by 25% to 40%. One caveat though for the deal to go through — another 20 years concession from the date the existing concession ends. PLUS’ concession expires in December 2038.
A Hong Kong-based private equity firm, RRJ Capital, has put in a RM3.5 billion revised bid to acquire PLUS.
Like other interested buyers, the firm offered toll discounts of up to 30% based on new cars’ price tag and plans to demolish toll booths to ease traffic congestion.
Then there is Maju Holdings Sdn Bhd, who has been wooing PLUS like a man madly in love. Its revised bid to own PLUS’ crown prize — the 772km NSE — included toll discounts and forgoing the RM2.7 billion owed by the government to PLUS.
Khazanah, which owns 51% of PLUS, had rejected all bids for its shares in the cash-minting highway business.
Its MD Datuk Shahril Ridza Ridzuan was reported as saying “our reply to all of them has been very simple — we are not interested in selling”.
Shahril Ridza claimed all the offers were below PLUS’ real value and the sweeteners offered in the bids were at the expense of the shareholders. “If you want to give discounts, it should be from your profits, not from us.”
Khazanah and EPF took over PLUS in what was the country’s largest corporate takeover, costing RM33 billion in 2011.
It is easy to see why the unsolicited interest in PLUS. Based on a recent release by PLUS, the central region recorded a daily average traffic volume of 850,000 vehicles.
Using a conservative RM10 collection for each vehicle, PLUS made RM8.5 million a day for the central region (between Seremban and Ipoh) or RM354,000 every hour, the price of a 1,000 sq feet apartment in south Kuala Lumpur.
PLUS’ cash business is largely the reason behind the nascent interest by the many buyers. Besides the estimated more than RM1 billion in annual dividends and a cash reserve of over RM1.5 billion, the real money in PLUS is the lucrative maintenance contract.
For bidders with a construction background, maintaining over 1,000 km of highways with a minimum of four lanes zigzagging across the country, it ensures a steady income for the next 38 years (with concession extension).
That is the viagra behind the PLUS acquisition. PLUS should not benefit a small group of investors or a business entity.
If there is any transaction to be made, PLUS should be sold and owned fully by the EPF.
The fund is already struggling to find reliable and stable returns. Its over RM820 billion assets will spiral to RM1 trillion in the next few years and the fund will be hard pressed to find a sound and steady local investment.
PLUS is a good fit for EPF. Instead of being owned by the rich few, PLUS fully owned by the EPF will benefit the 13 million members — the large majority of whom use the highways.
In the end, the majority gets the return in the form of dividends. Karma is not as bad even when you are paying toll.
Mohamad Azlan Jaafar is the editor-in-chief of The Malaysian Reserve.