OSK Investment Bank said it was skeptical over a plan by an unlisted firm Asas Serba to acquire all the toll highways at RM50 billion while cutting toll rates and achieving current margins.

Here are some of the highlights from the research report issued on Monday:

  • "Asas has offered to acquire all the 23 toll highways in Malaysia for a whooping RM50 billion. It said the price comprises RM30 billion for related debts and RM20 billion as the equity portion. The company only intends to acquire highways that are already in operation and not those under construction."
  • "To put things in perspective, the RM50 billion price tag represents 12 percent of the KLCI's market capitalisation. Based on current market capitalisation, PLUS and Litrak alone are worth RM18.6 billion, thus giving Asas control of only 5.5 highways (0.5 arising from the fact that Litrak onlyowns 50% of SPRINT)."
  • "Clearly, RM50 billion is no mean sum and we believe funding will be a key issue. Some bond market players have even stated that raising RM50 billion in bonds could potentially cause indigestion in the bond market."
  • "The process of acquiring all 23 highways, which are owned by various government and private sector entities, will be a complex one, to say the least. Gaining approval from all stakeholders could prove to be daunting. The numerous hiccups encountered in the proposed consolidation of Selangors water assets is testimony that major acquisitions such as these are never easy. Furthermore, Asas has not even received the government's blessings."

'Unlikely companies willing to sell'

  • "Some of the highways are owned by companies such as Gamuda and IJM. Contribution from expressways is important in smoothening their earnings cycle, especially when other divisions (eg, construction) are doing poorly. The steady cash flow from expressways also plays a key role in supporting the dividends paid by these companies."
  • "As such, we think it is unlikely that those companies would bewilling to sell their toll concession assets unless the price is too good to turn down."
  • "Top toll operator PLUS is not for sale. Head of Economic Planning Unit (EPU), Nor Mohd Yakcop, had re-affirmed previously that the government has no plans to sell its entire stake in PLUS. Earlier this year, Khazanah managing director Azman Mokhtar also poured cold water on speculation of the selldown when he said Khazanah would retain PLUS as one of its core assets."
  • "We think it is very unlikely that the government will allow Asas to privatise PLUS. PLUS is a key stock on Bursa (Malaysia) that provides sizable exposure to Malaysian tolled roads and is among the top 10 toll road operators globally by market capitalisation."

- Reuters