PETALING JAYA: The recent news of the government’s decision not to sell PLUS to the private sector will likely bode well for UEM Edgenta Bhd, since there were previous concerns that its 100%-owned unit Propel might lose its role as the maintenance contractor for the North-South Expressway (NSE).
In a research note, HLIB Research said it believes a sale to the private sector may lead to complications with regards to obtaining bondholders’ approval.
“As we understand, PLUS’s sukuk is currently rated by MARC as ‘AAA’, in part we think due to its government ownership. In our view, a shift of ownership to the private sector would have inevitably met opposition from the bondholders due to heightened credit risks.
“Such a scenario would have required compensation paid to the bondholders to facilitate the sale. Consequently, plans to reduce toll rates by a minimum of 18% may be derailed,” it said.
Last week, Prime Minister Tun Dr Mahathir Mohamad said the sale of PLUS was rejected after considering all proposals from the private sector. In total, four unsuccessful bids for PLUS were tabled to the government.
They comprised bids from Tan Sri Halim Saad (100% equity stake for RM5.2 billion), Widad Group (RM5.3 billion cash offer), RRJ (100% equity for RM3.5 billion) and Tan Sri Abu Sahid Mohamed (enterprise value offer of RM34.9 billion).
Mahathir also indicated that toll rates would be cut by 18% by extending the outstanding concession period by 20 years.
HLIB Research noted that with the extension of the concession, UEM Edgenta’s tenure as maintenance contractor for NSE may possibly be further extended. As such, it is maintaining its “buy” call on the stock with a target price of RM3.56.
“There was no mention for the fortunes of four toll roads (LDP, KESAS, SMART & SPRINT) undergoing an acquisition attempt by the government. However, a sale of the four tolled highways looks increasingly likely as it does not contradict the government’s policy on tolled highways, as evident by the non-sale of PLUS.
“Based on details from the proposed transaction, Litrak’s (NR) fair value amounts to RM5.21 representing a 10.6% upside from current price,” HLIB Research added.
