Highway takeover a step forward?


THE restructuring of four Klang Valley highways concessionaires is a win-win decision for all parties — the government, road users and Gamuda Bhd — but transparency and viability remains a key issue on the takeover.

The Centre of Market Education CEO Dr Carmelo Ferlito said the details for the plans are still limited, but he sees some critical points from the scenario.

“The first one is that when the number of suppliers decreases, the power of the only one left increases and usually consumers suffer from this dominant position.

“Secondly, there is a great talk of frozen prices and non-for-profit business — then I wonder how the road conditions can be maintained and improved,” Ferlito told The Malaysian Reserve.

Read more: No toll hikes on 4 highways as ALR offers takeover

Notably, he said decreasing the number of subjects could result in extremely high advantages to the only player left in the game, which is connected to the government’s privileges.

On Monday, the government announced the restructuring of four Klang Valley highways concessionaires, namely Kesas Sdn Bhd, Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd, Sistem Penyuraian Trafik KL Barat Sdn Bhd, and Lingkaran Trans Kota Sdn Bhd (Litrak) through private entity Amanah Lebuhraya Rakyat Bhd (ALR) worth RM5.5 billion in enterprise value (EV) in a bid to maintain toll rates.

Ferlito views that the restructuring will be a further step toward a mentality of “protected entrepreneurs” instead of a step toward a higher degree of competition.

“Consumers benefit from competitive markets and not from protected ones. I think we need restructuring in the opposite direction — toward a higher degree of openness rather than closure,” he said.

Read more: Analysts positive on offer for Gamuda, Litrak highways

CGS-CIMB Research’s analyst Sharizan Rosely dubbed the restructuring as the “first of its kind” in Malaysia. The analyst noted that the total takeover value of RM5.5 billion is 13% lower compared to the RM6.2 billion EV from the original offer in 2019.

However, he said Gamuda’s share of the estimated equity value of RM4.4 billion for all four highways is RM2.3 billion which is slightly lower by 1% compared to the previous equity value of RM2.35 billion.

“This cash offer translates into 91 sen per share or 26% of Gamuda’s market capitalisation with estimated net disposal gain of RM1 billion,” he said in a research note recently.

Nevertheless, he believes the offer will be accepted as it puts closure to the long-drawn highway divestment scheme.

“Also, the highway trust model is deemed to be a win-win deal for Gamuda, the government and highway users over the longer run,” he added.

Read more: Gamuda says still considering ALR’s takeover bid

Meanwhile, renowned economist Dr Nungsari Ahmad Radhi said the restructuring as a good development for the country.

“This was attempted after the last general election, I’m glad this administration completed a part of it,” said Nungsari.

He noted that ALR is a private company with shareholdings by some statutory funds.

“So, it is a private (ALR) taking over private (Gamuda and Litrak), and government involvement because the government is the asset owner and would likely extend the concession period to the new party in return for the assurance of no toll increases,” he said.

He believes the restructuring will allow the government to save its expenses as it will not have to compensate the concession holders in the future for keeping tolls fixed.

Nevertheless, he also hopes that ALR will keep its finances strong as they will have to borrow the funds to take over the tolls.

“So that a few years down the road, they won’t come back to the government and ask for help.

RAM Ratings said in a note yesterday that the proposed sale of the highway concessions does not have an immediate rating impact on Gamuda’s (the group) and its subsidiaries’ debt programmes.

“The highway disposals are expected to yield proceeds in excess of RM2 billion strengthening Gamuda’s balance sheet to a net cash position. As the proceeds could be channelled to new construction and property development projects and/or to reward shareholders via special dividends, the group’s longer-term financial impact will hinge on the utilisation of the sale proceeds,” it said.