Water deal collapse dampens Puncak Niaga O&G venture

PETALING JAYA: Puncak Niaga Holdings Bhd finds itself between a rock and hard place again as the Federal and Selangor state government resumed their blame game after the water consolidation was aborted on Tuesday.
Left adrift, the water company controlled by Tan Sri Rozali Ismail, said that it has yet to receive either a written request from Pengurusan Air Selangor Sdn Bhd (Air Selangor) for a further time extension or a notice to rescind the sales and purchase agreement (SPA).
Puncak Niaga told Bursa Malaysia yesterday that it will convene a meeting soonest to deliberate on the impact of the aborted water asset sale which analyst's believes has put a spanner in the works on it oil and gas (oil & gas) venture.
Selangor Menteri Besar Datuk Mohamed Azmin Ali confirmed yesterday that the water agreement between the Selangor state and the federal governments has lapsed and declined to give a third extension to the master water agreement.
Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili yesterday said that the Federal government will stand by the original master agreement for the Selangor water industry consolidation.
In a media statement, he said although the master agreement was signed on Sept 12 2014, "it is still not yet in force because there are conditions precedent (CPs) that have not been met."
Puncak Niaga, however, said it has met all conditions.
Ongkili also pointed out that the implementation of the Langat 2 Water Treatment Plant and Distribution System Langat2 is not subject to enforcement of the agreement.
It is widely believed that conflict between the state and federal governments is centred on control over certain water assets in the state, namely the Semenyih and Bukit Nanas dams, and the pipe network.
Meanwhile, Affin Hwang Research analyst Lim Tee Yang said the uncertainty surrounding Puncak Niaga's water asset disposal is negative given that the company's continuing operations, namely in the O&G segment, is facing headwinds.
Under the asset sale, Puncak Niaga was expected to receive a cool RM1.56 billion in cash and upon completion of the disposal, Puncak will be a pure oil and gas (O&G) play via its 100%-owned subsidiary in Puncak Oil & Gas Sdn Bhd.
Puncak Niaga had planned to use the RM1.02 billion proceeds for future investments which may include expansion into the oil & gas and plantation businesses.
Affin Hwang Research, which maintained its "hold" call on Puncak Niaga at an unchanged target price of RM2.90, did not ascribe any valuation to Puncak Niaga's O&G business due to poor earnings visibility.
"Following the decline in crude oil prices, we believe the key re-rating catalyst of merger and acquisition in the O&G industry for the stock is less robust," Lim said.
Meanwhile, RHB Research analyst Kong Heng Siong expects Puncak Niaga water asset disposal to be shelved for the time being, until the Selangor state and the federal governments sort out their differences.
"This latest twist of events is a major negative surprise to us. We are disappointed that, after seven years of negotiations, things could go back to square one should the Federal Government and the Selangor State Government fail to reach an amicable solution," Kong said.
On the increasing likelihood that there will be further delays on the negotiations, RHB Research downgraded Puncak Niaga to "neutral" from "trading buy with a RM2.61 target price.