Saturday, September 25, 2010

EPF To Buy PLUS Expressways?

Is this a scoop? THis was reported in an exciting newish blog named Taikuns & Taikors. It now looks like sensibility has won the day with EPF entering the fray to buy PLUS Expressways. I can so no better solution to that. This toll system is too ingrained to be in private hands. At least now, all profits will accrue to EPF holders.

Deepika Padukone

Some twelve million EPF members are in for a windfall as the huge profit stream from Plus will directly boost yearly interest payout to exceed the current average of five percent, though earlier MMC Corp and Asas Serba proposals to buyout Plus are rejected.

The government has given the nod for the Employees Provided Fund to acquire Malaysia's largest tolled highway operator, Plus Expressways Bhd, putting an end to the attempts of two private companies to take over the Khazanah-owned entity.

EPF’s late-entry acquisition pips the proposals made separately by Tan Sri Syed Mokhtar Al-Bukhary’s MMC Corporation Bhd and Tan Sri Halim Saad’s Asas Serba Sdn Bhd to buyout Plus through Khazanah Nasional Bhd, which directly owns 16.74% of Plus and has an indirect stake of 38.51% via UEM Group.

Raising the roughly RM11 to RM12 billion to pay for the 55% of Plus shares now in Khazanah’s hands is considered as “loose change” as EPF has RM402 billion in total asset allocation as at March this year and would not require the pension fund to resort to the debt market.

Plus Expressways Bhd announced a traffic volume of 1,281.4 million Passenger Car Unit kilometer (PCU-km) in July, up four per cent compared with the same period last year.

Deepika Padukone

PLUS manages the North-South Expressway, New Klang Valley Expressway, Federal Highway Route Two and Seremban-Port Dickson Highway.

For the seven-month period ended July 30, traffic increased nine per cent to 9,916.7 million PCU-km from the previous corresponding period.

Meanwhile, its ELITE (North-South Expressway Central Link) subsidiary recorded 137.8 million PCU-km in July, an increase of 10.1 per cent from the corresponding period.

Year to date, traffic rose 13.6 per cent to 911.4 million PCU-KM against the the same period last year.

Read more: Plus Expressways posts 4pc traffic growth

The shifting of a large chunk of a government controlled asset from one institution to another, is seen as the end of strategic assets being placed in the hands of individuals and ushering a new era of compliance on public accountability.

At a stroke, some 12.7 million EPF members will enjoy a windfall, as analysts compute the added cash flow from Plus to EPF will see its members gaining an extra one or two percent in annual interest payout from the present average of 5 percent.

In recent weeks there has been an unprecedented surge in the share price of Plus, touching its all-time high recently of RM4.32 on September 1 from its 52 week low of RM3.20.

Commenting on the government’s move to shift a strategic asset from one institution to another as it matures, in this case transferring Plus from Khazanah to EPF, a senior local banker said, ”It really is a way of sharing corporate profits directly with the public so people can gain from well run business operations within the government stable.”

A stock analyst familiar with the deal adds that the government has taken a lot of brickbats in the past for awarding contracts to individuals and this move marks the end of an era of placing strategic assets in the hands of individuals.

Deepika Padukone

“Almost all the past corporate debacles stemmed from individuals being trusted to manage national assets or assets of strategic importance. However, a mix of over-gearing and perhaps, over-ambition, led to their eventual failure which saw the government being forced to bail them out.

“In fact, Plus was once under the Renong Group and Khazanah was asked to take it over, rehabilitate the company and put in place a strict code of corporate governance.

Plus today is a really top-notch operation that is rated one of the world’s top five tolled highway operators.

“From Putrajaya’s viewpoint, it makes sense to transfer Plus to another state institution that pays out dividends directly to millions of Malaysians. We have to see this as a signal from the present administration that they are using a fresh approach to pass on profits generated by state-controlled companies to the man-in-the-street.

At the same time, the old practice of awarding large-scale state assets to individuals has come to an end,” he said.

The Plus purchase caps an acquisition spree by EPF which saw it take control of property developer MRCB and bank holding company RHB Capital, as a means of controlling large-scale profit generators to pay out a steady dividend pipeline to its members.


Present Value said...

Looking forward to see EPF taking ownership of this cash cow for the sake of mostly underpaid Malaysian workforce.

Reap the value and share the fruits with millions of dedicated Malaysian who wants to see this country move forward in the value chain...better life for all!

K H said...

If possible, take over those IPPs as well.

ronnie said...

It is a way for Khazanah to realise a whopping (?) profit and free up cash for Khazanah to acquire assets from friendly parties.

JlnTunRazak said...

After seeing firsthand EPF's handiwork at RHB, I doubt they are the best choice to buy PLUS. said...

I don't see the value added of EPF taking over PLUS. Yes, the members will benefit from it. The next question we need to ask is EPF has the right person to run the company? The last thing Malaysia needs is another good company taken private and not managed by a professional manager.

Rohan said...

Actually, this will be a better deal for PLUS, EPF and to all Malaysian pulic.

As of right now, EPF is already holding bulk of PLUS Bonds and any acquisitions by "cronies" will result in EPF picking up the Bonds and surely 90% of the acquisition will be funded by Bonds or some quasi debt papers. Any if the "cronies" screws up or missmanage the funds, EPF will bear the brunt of it. Better for EPF to have control of the cashflow, management and secure a long term cash generating asset. Nobody will complain if toll rates are kept at status and concession extended if EPF is the onwer of PLUS, its the rakyat eventually.

Financially its a better proposal as EPF's required rate of return is lower than many private investors and hence the savings can result in lower toll rate.. A good WIN WIN deal for all.

jazzmutant said...

Better late than never. Still wondering why it took so long for EPF to get this through the due diligence stages. Still, don't mean to be a sad sack though, I'm really glad this sure thing investment will be in public hands

Tony Yew said...

Buying over ownership is not the same as managing the company!

Point to remember; The current Management of PLUS has done well to lift the company post Halim Saad, and has now taken it regional.

As such, the ownership change to EPF will be a good thing so long as they recognise that the anagement of PLUS need not be changed.

from shareholder point of view, the EPF will up their value in blue chip holding.

win,win for rakyat and EPF.

G-man knows that PLUS is already a 'have to go' entity to soothe the ghost-of-toll-payer's past!

If they want to stay in power, time to let the rakyat WIN!

Rohan said...

PLUS to see major announcement during Budget. EPF to come into to restructure PLUS. No change in onwership but PLUS will end up with lots od cash almost 10 to 15B more, and EPF will have long term recuring income. The best deal for all. Toll rate increase will be reduced substantially. Next play to be LITRAK...

Andrew said...

EPF acquires PLUS so that the public will not complain(much)when they raise the toll prices?

I actually yearn for the day, that highway toll concessions will eventually end, and Malaysians can move around cheaply.