Puncak Niaga Holdings Bhd founder and executive chairman Tan Sri Rozali Ismail’s 41.3% stake in the company is valued at about RM484.2mil, based on the net proceeds of RM1.56bil it is set to receive from the Selangor water restructuring exercise.
Estimated Puncak Niaga was set to receive net proceeds of RM1.56bil, which translates to RM3.78 per share.
It is unclear what is Rozali’s plan to move the company forward with the pile of cash it would receive.
Other substantial shareholders of Puncak Niaga are Lembaga Tabung Haji with 5.49%, Oversea and Chinese Banking Corp Ltd (5.05%) and Amanah Saham 2020 (5.04%).
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.
Among the four water concessionaires in Selangor, Puncak Niaga is the largest.
Although Puncak Niaga has remained status quo on the takeover of its water assets by the state government, talk is rife that both parties are on talking terms to come to an amicable solution.
Puncak Niaga started its water treatment business in Selangor in the 1990s. The company widened its role in 2004 when it was awarded a 30-year concession to manage Syabas.
The agreement was signed by the federal and Selangor state governments. The two other companies with concessions to supply treated water to Syabas are Konsortium Abass and Splash.
The other major water player in Selangor, apart from Puncak Niaga, is KDEB, which holds a stake in various water assets via its 61%-owned Kumpulan Perangsang Selangor (KPS).
KPS has a 55% stake in Konsortium Abass, 30% in Splash, 30% in Syabas and 20% in Taliworks Corp Bhd, another player in the Selangor water sector.
Splash also has Gamuda Bhd as a 40% shareholder, while the remaining 30% stake is held by The Sweetwater Alliance Sdn Bhd.
And although federal government vehicle PAAB is responsible for facilitating the consolidation of water assets in the respective states, in the case of Selangor, the mandate had been placed on KDEB in February 2008.
If the takeover happens, a source at Puncak says that the company has over the years been investing in the latest technology in the water business and that can be replicated elsewhere in the region.
The sale of Puncak Niaga’s water assets will unlock the value of its assets into cash, free the company from high receivables from Syabas amounting to RM2bil and provide the company with a stronger financial footing to expand.
In mid-2008, Puncak Niaga entered the China market via its 80%-owned subsidiary Sino Water Pte Ltd, a company incorporated in Singapore which focuses primarily on potential markets in China. Puncak Niaga later increased its stake in Sino Water to 98.65%.
Sino Water has established various subsidiaries in China to undertake potable water and wastewater projects in several provinces there.
For Asean countries, Puncak Niaga has formed a wholly-owned Singapore subsidiary, Puncak Niaga Overseas Capital Pte Ltd, which will spearhead its entry into Vietnam, Cambodia and Laos.
Apart from expanding its expertise in the water services sector, the source says Puncak Niaga is also very interested in expanding its O&G business. It has the expertise in the O&G fracking process that requires very high water pressures. In the longer run, Puncak Niaga also has the aspiration to be involved in the exploration and production of oil.
At the end of 2012, the company’s O&G subsidiary, GOM Resources, had a positive impact on the group’s overall results, contributing 20.8% to the group’s revenue.
At present (Sept 2013), Puncak Niaga’s O&G capabilities involve construction and subsea services and marine support services to the offshore services segment.
However, the unit is exploring many other areas, both mid-stream and upstream, and is looking to expand locally and overseas.
In 2012, GOM Resources set up the exploration and production division to evaluate business development opportunities, both locally and overseas.
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.
In a clear attempt to break the deadlock between the Selangor government and Puncak Niaga Bhd, the state has invited the water treatment concessionaire to jointly meet with PAAB to resolve outstanding issues in relation to the latest offer by KDEB to take over the water assets in the state.
This comes hot on the heels of Puncak Niaga’s response to KDEB’s offer in late Deb 2013 stating that they had to resolve certain issues with PAAB before the board could consider the offer.
Puncak Niaga wanted to clarify the offer with PAAB before taking any action.
The Selangor government, through KDEB, has been trying to privatize the state’s water concessionaires for the past four years. KDEB got the mandate from the federal government in Feb 2008.
Khalid says KDEB should have no trouble raising funds for the acquisition.
Once KDEB takes over the water concessionaires, it plans to sell the water assets of these companies to PAAB. PAAB has already been acquiring PNSB and SYABAS’s debt papers, which are now (March 2013) worth less than rm4.99 billion.
If the consolidation exercises takes place, PAAB will act as the holding company of all the water assets. The state will create a SPV to manage and operating the water assets using an asset light model. The SPV will then leases the assets in return for an estimated lease payment of between 3% and 4% which is PAAB’s cost of debt.
It is stepping up efforts to hedge against the possible loss of its water business. The company, which owns water treatment and distribution assets in Selangor, is understood to be close to securing a solid waster management contract in Cambodia .
An announcement pertaining to the award of the solid waste management contract could be made soon, after a few minor issuers are finalized with the Cambodian authorities.
Sources also say that Puncak Niaga, together with a foreign partner, is keen on developing marginal oil fields locally.
Apart from the Cambodian foray, Puncak Niaga has also been attracting attention as an oil and gas outfit.
Sources say that it has submitted a proposal to the Malaysian government seeking support for its bid to develop marginal oil fields and even brownfields. Considering that Puncak Niaga’s controlling shareholder Tan Sri Rozali Ismail is closely linked to UMNO, it is likely to receive support.
Puncak Niaga ventured into the oil and gas sector in May 2011, when its wholly owned unit Puncak Oil and Gas Sdn Bhd acquired 40% equity interest in Global Offshore Malaysia Sdn Bhd and KGL Ltd.
Rumors also said that water consolidation exercise whish was mooted in 2008 would take off soon, leaving the company without a core business, but cash rich from divesting its two main assets – wholly owned water treatment company Puncak Niaga Sdn Bhd and water distribution outfit SYABAS, in which Puncak has 70% equity interest.
SYABAS has the mandate to distribute treated water to KL, Selangor and the federal capital of Putrajaya.
Puncak Niaga has been in a bind as the company has been at loggerheads with the state, and is thus unable to enforce a tariff hike of 37% that was to have been imposed in Jan 2009. That state government has opposed the hike, stating that Rozali and Puncak had breached key terms of the concession agreement, and is thus unable to enforce a tariff hike of 37% that was to have been imposed in Jan 2009.
The state government has opposed the hike, stating that Rozali and Puncak had breached key terms of the concession agreement and has not lived up to non revenue water targets.
Puncak Niaga has been surviving largely as a result of soft loans offered to the company by the federal government, a situation that has understandably further irked that state.
Puncak Niaga was unaware of any rumors nor did it have any corporate developments that have not been announced with regard to the restructuring of the Selangor water industry. On 08 Feb 2012 Selangor MB Tan Sri Khalid said in a statement Bursa has yet to explain satisfactorily why P Niaga was given a waiver from being listed as a PN17 company. Also he that it would continue to push ahead for the restructuring of the water industry, claiming the water concessionaires will continue to fail the country. It said that Syabas should not be retained as the water services operator in the state.
A proposal is in the works for IWK to be taken over and managed by 1MDB with Puncak Niaga as its partner. These entities will then jointly run the loss making IWK, which is tasked with managing the public sewerage systems for most of Malaysia , excluding Kelantan, Sabah, Sarawak and JB.
Puncak’s executive chairman Tan Sri Rozali Ismail has clarified that the company is in talks with 1MDB on the possible takeover of IWK. However, it will not be taking a majority stake. It will only provide the technical expertises and the systems.
1MDB which is wholly owned by the government had confirmed that it was assessing a partial privatization of IWK in which the government would retain control.
At this juncture, it is uncertain what shape and structure the takeover of IWK will take but it is learnt that its assets and liabilities will be sold for rm1. More crucially, the water and sewerage bills will be consolidated to improve the collection of IWK charges.
Also the takeover of IWK jointly by 1MDB and Puncak Niaga may involve a commitment by the government to provide up to rm2 billion over the next few years to upgrade and build new sewerage facilities.
IWK’s problem has always been the collection of sewerage bills and this is often cited as one of the reasons the company has been loss making.
It forms part of the government’s attempt to clean up IWK, which will then be followed by a crackdown on the industries that discharge water into the river. IWK will also monitor the levels of wastewater effluence in the rivers.
Sources also says that Puncak Niaga’s 70% subsidiary SYABAS which is responsible for water supply and distribution in Selangor, the Klang Valley and Putrajaya, will eventually run the show at IWK.
The deal is set to happen very soon, with some expecting the issue to be settled before the year end 2011.
There is no question that with two water concessions already under its belt, a wastewater management concession would help strengthen its position as a water player in Selangor. More importantly, the consolidation of the water and waste management bills will finally get rid of a persistent problem for IWK.
What is the rationale behind for taking over IWK? There is value to be had in IWK in spite of its poor financial showing. Sources say the company spent around rm600 million t o rm700 million alone in 2010 on top of the rm540 million opex. These are contracts that will be divided out to subcon as it would prove difficult for IWK to handle every aspect of its business. Thus although the business is loss making, its capex and opex are enough for any operator in the water industry to give it a second look.
And if the injection of funds of up to rm2 billion into IWK to upgrade and build new facilities happens, the company would be an attraction to anybody. The returns from capex works would serve as a sweetener to any company.
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.
