Gamuda’s proposal to sell four highways a boon to government?

KUALA LUMPUR: Gamuda Bhd’s purported proposal to have its four highways acquired by a highway trust for RM5.2 billion will benefit the government.

The purported plan would also benefit businesses as well as the masses in Kuala Lumpur and Selangor, said Kenanga Research.

Its analyst Lum Joe Shen said such proposal could be the best way forward if the government intended to continue freezing toll hikes, instead of opting for a compensation method given its weak fiscal position.

“By undertaking this proposal, we see the government being the greatest beneficiary as they get to save on toll compensations worth RM5.3 billion over the toll concessions’ remaining tenures,” he said in a report today.

Lum said the proposal would indirectly help Gamuda raise private funding initiative (PFI) equity to jump-start the intended Mass Rapid Transit 3 (MRT3) project.

“This means less fiscal burden while stimulating the economy at the same time,” he said.

According to reports, Gamuda had put forward a proposal to the government to sell four highway concessions to a trust known as Amanah Lebuhraya Sdn Bhd.

Lum said the new proposal was better than the 2019 model proposed which required the government to be a guarantor and suggested a congestion charge model with a 30 per cent lower toll rates, which could be disruptive towards traffic flow on competing highways/public transport.

Kenanga Research said the trust would fund the acquisitions by raising monies from bond investors with a promised annual return of 4.0 per cent to 5.0 per cent backed by cash flows from the tolls without any need for government guarantees.

The four highways are Lebuhraya Damansara-Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Lebuhraya Shah Alam (Kesas), the Smart Tunnel and the 43.2 per cent-owned Lingkaran Trans Kota Holdings Bhd (Litrak).

“These highways’ enterprise value (EV) is estimated to be RM5.2 billion, lower than the RM6.2 billion valuation accorded in 2019 after accounting for two years of less cash flows – in line with our estimates.”

Dissecting the RM5.2 billion EV valuation, Kenanga Research estimated the four highways to have an equity value of RM3.7 billion with remaining debt of RM1.5 billion.

“Consequently, Gamuda’s effective equity stake would be valued at about RM1.9 billion – of which it would record a gain of about RM0.7 billion based on its FY20 effective net asset value of RM1.2 billion for the highways.”

In exchange for no toll hikes moving forward, Lum said the concessions would be extended by tentatively five years with an option of another two to three years’ extension to cover any deficits to repay the trust bonds.

He said the lump sum cash obtained would be ideal for Gamuda to help jump-start new growth areas such as the MRT3 while liberating the company from policy, traffic and regulatory risks.

“This initiative – indirectly also benefitting the government by alleviating their cash flow burdens for this mega project.

“Should such sale go through, Gamuda’s net gearing position would improve to 0.06 times (from 0.28 times as of January 2021,” he added.

Source: NST