The last hurdle in the Selangor government’s effort to consolidate the state’s water assets are two of the shareholders of SP:ASH – Gamuda and The Sweetwater Alliance Sdn Bhd.
KPS had already accepted the Selangor government offer in March 2014. The Selangor government has a 57.6% stake in KPS.
If SPLASH gets a higher equity value of more than 10% which means KPS will also get 30% of the restated net gains.
To recap, Gamuda had previously stated that the net gain for SPLASH from the Selangor government’s current (June 2014) amounts to rm250 million or just 10% of SPLASH’s equity value of rm2.54 billion.
Based on KPS’s 30% stake in SPLASH, it stands to realsie a net gain of 75.18 million from the rm250.6 million.
If the offer to SPLASH were to be revised higher, KPS may well find its cash coffers expanding substantially.
The divestment of KPS’s property development business in 2013 added rm21.8 million to its war chest. It sold its 56.57% stake in KHSB to KDEB.
Despite the large cash pile, KPS has experienced stagnating earnings growth.
KPS has a 40% stake in NGC Energy Sdn Bhd, which it acquired for rm40 million in June 2012. NGC is involved in the distribution of LPG under the Mira Gas brand, commands a 20% market share.
Apart from the LPG business, KPS is involved in the telecommunications via a 30% stake in Ceres Telekom Sdn Bhd which was acquired for rm24.2 million.
The proposed disposal of its equity in two water operators – SPLASH and Konsortium Abbas Sdn Bhd – would eliminate the bulk of the revenue generated from its infra and utilities division.
Some say that the exit of such a large revenue contributor would make KPS a shell company. This raises the question of whether it should be hoarding the cash to look out for new businesses, instead of returning the proceeds to shareholders.
The intervention of the federal government in Selangor’s water restructuring exercise is seen as a positive light.
The notification implies there will be no changes to Selangor government rm9.7 billion takeover offer.
Following the news, sources clarified that the federal government may consider taking over the administration of water operations and not the water assets a widely interpreted.
There are five positives in the latest scenario …
1. The Federal government’s intervention will jump start the restrusturing;
2. It leaves more room for Puncak and Gamuda to re negotiate the exit price for its water assets.
3. Puncak (owner of PNSB and SYABAS) may be able to get its proposed valuation top up/compensation;
4. Gamuda could get a valuation upside for 40% owned SPLASH;
5. The construction of the Langat 2 water treatment plant and major large diameter pipe works can begin.
The direct beneficiaries from a negotiation of the takeover valuations are Puncak Niaga and Gamuda.
The larger diameter pipe laying works will spill over to pipe players such as Engtex.
Nonetheless, the Selangor state government’s move to invoke Section 114 of Water Services Industrial Act to get the federal government in could deal a big blow to the water players.
The main contentions of the Selangor offer included the absence of payment of surplus of assets and the 12% return of equity evaluation of the equity portion. With the invocation, it is uncertain if the terms of the offer still stand.
While the invocation might expedite the restructuring exercise, it is unlikely that the players will receive an offer that meets their expectations.
Puncak Niaga has been notified by KDEB that there will be no further discussions on the proposal to purchase the equities of PNSB and SYABAS for the foreseeable future. This means that all previous offers made by the Selangor government to Puncak Niaga and Gamuda Bhd may have to come to an end.
The statement comes after the Selangor state and federal government decided to evoke Section 114 of the Water Services Industry Act 2006 (WASIA).
The section reads; The minister may … direct the National Water Services Commission to assume control of the whole of property, business and affairs of a licensee and carry on the whole of the licensee’s business and affaris.
The state government has agreed to give full cooperation to the federal government to use Section 114 … which, among others, stipulate the National Water Services Commission (SPAN) appoint two administrators on behalf of the water concessionaires to handle the restructuring of the water services industry of the state.
Market observers opine that the Selangor Government’s latest offer to consolidate the state’s water sector, PNH may potentially pocket net cash proceeds of about rm1.0 billion.
Selangor’s offer in March 2013 valued PNH’s 100% interest in Puncak Niaga Sdn Bhd and 7-% stake in SYABAS at rm5.6 billion.
However, it has yet to take into account the company’s borrowings to pay off at PNSB and SYABAS level to complete the disposal of its stakes in both firms.
Netting these off, estimate that PNH could potentially pocket net cash proceeds of just below rm1.0 billion, which translates into rm2.42 per share.
The settlement of borrowings related to the water assets and the receivables due from the state government have yet to be sorted out.
Furthermore, PM Datuk Seri Najib has yet to make a public statement on the Federal government’s stance.
With UMNO election coming up in Nov 2013, observers envisage that the current (July 2013) water deadlock crisis in Selangor will likely be resolved later than sooner.
There is also a possibility that the Federal and Selangor governments may instead focus on pushing through the official awarding of Langat 2 water treatment plant in the near term.
Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.
