Malaysiakini Letter

Offer by Air S'gor a 28 pct discount of Splash's net book value

Suhaimi Kamaralzaman  |  Published:  |  Modified:

LETTER | We refer to the article published by The New Straits Times on Aug 8 where former Selangor menteri besar, Abdul Khalid Ibrahim made the claim that Selangor will end up paying 10 times more than the company’s actual value.

Air Selangor wishes to state that such a claim is patently wrong.

Calculation of Splash's value

The value of Splash is not RM250 million.

This figure of RM250 million was derived by applying a 12% return on the equity invested by Splash shareholders from the start of the Splash concession in January 2000 until a cut-off date of Dec 31, 2012.

The dividends paid out before the cut-off date was then deducted from the resulting figure to arrive at a final figure of RM250 million.

It was this figure of RM250 million that was offered to Splash shareholders in 2013.

Based on the audited financial statements of Splash, its net book value as at March 31, 2013, amounted to RM1.84 billion.

The offer of RM250 million first made in 2013 represented an 86 percent discount of the net book value of Splash.

The Splash acquisition is being undertaken on the principle of willing buyer, willing seller.

For such a transaction to take place, both the buyer and the seller must be willing before any acquisition can be concluded.

Over the last five years since 2013, Splash shareholders have consistently rejected the possibility of selling Splash at RM250 million, in light of the large discount to its net book value.

Arising from the five-year delay, the debts owed to Splash for sale of treated water has since ballooned to RM4.7 billion, which led to Splash commencing legal proceedings in April.

Verification of net book value

The net book value of Splash has been verified by no less than three independent parties: -

  • RHB Investment Bank, the valuer appointed by Selangor State, ascribed a value ranging from RM2.5 billion as at 31 March 2015 on a book value basis to RM3.2 billion on a discounted cash flow basis;
  • Deloitte, the valuer appointed by the Government of Malaysia, undertook a verification of the Splash net book value and concluded in 2017 that a value of RM2.7 billion to acquire Splash was fair; and
  • Based on Splash financial statements of audited by Ernst & Young, the net book value of Splash amounted to RM2.8 billion as at 31 March 2017.

In all the three cases highlighted above, the offer of RM2.55 billion made by Air Selangor represents a discount to the values ascribed.

The consideration of RM2.55 billion offered by Air Selangor on Aug 3 represents a 28% discount of the net book value of Splash.

As at June 30, the net book value of Splash amounted to RM3.54 billion.

It should also be noted that the offer made by Air Selangor only represents 54 percent of the debts owed i.e. a discount of 46 percent.

No special preference

Air Selangor also strongly refutes the accusation that special treatment is being given to Splash.

On the contrary, the discount applied in the Splash transaction is higher than the discount in the acquisition of Puncak Niaga (M) Sdn Bhd (PNSB) in 2015, the water treatment operator owned by Puncak Niaga Holdings Berhad.

In the PNSB transaction, Air Selangor paid a price equivalent to 0.86 times of the net book value of PNSB’s water concession business, i.e. a 14 percent discount on the net book value of PNSB’s water concession assets. In that transaction, Air Selangor did not acquire PNSB’s non-water concession assets.

In the case of the Splash transaction, the offer by Air Selangor represents a value equivalent to 0.72 times the book value of Splash i.e. a 28 percent discount on the net book value of Splash.

Clear benefits

The benefits of acquiring Splash to facilitate the conclusion of the Selangor water industry restructuring are clear. These include the following: -

  • Bonds and loans owed by the four water concession companies totalling in excess of RM8 billion will be taken over by Pengurusan Aset Air Berhad (PAAB) and restructured into long-term lease rental. Water-related loans extended by the federal government to the Selangor state government exceeding RM1.1 billion will also be restructured into long-term lease rental.
  • All water concessions will be terminated, and the multiple layers of profits previously enjoyed by the likes of private concession companies such as Splash will come to an end.
  • Cost of treated water will fall from the current RM1.37 per m3 in bulk supply rates (BSR) paid to Splash to more reasonable rates of starting from between 42 to 44 sen per m3. This reduction in operating cost arising from the consolidation of water supply services to be undertaken by Air Selangor in a holistic manner will have a positive impact on the operating efficiency of Air Selangor.
  • With the acquisition of Splash and the conclusion of the Selangor water industry restructuring, Air Selangor will have access to attractive funding terms from PAAB for its future Capex projects. The terms of funding under PAAB are better than commercial funding with lease payments made over 45 years at affordable lease rates.
  • Air Selangor will also gain access to funding for projects relating to water resource such as dams, which will be provided by the federal government in the form of grants.

All the benefits highlighted above will not be available until the acquisition of Splash is concluded as part of the final stage of the Selangor water industry restructuring.

The sole shareholder of Splash, Syarikat Pengeluar Air Selangor Holdings Berhad has since on Aug 9 accepted the offer by Air Selangor.

With this acceptance, the restructuring of the water services industry in Selangor, as well as the Federal Territories of Kuala Lumpur and Putrajaya, is expected to be completed by the end of 2018.


The writer is the chief executive officer of Pengurusan Air Selangor Sdn Bhd.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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