PLUS Expressways’ Takeover – Of Tax Waiver and Strategic Assets.

Dr Dzulkefly Ahmad, A PAS Member of Parliament for Kuala Selangor.

That Plus Expressway is out for grab is an open secret. Already the largest and most lucrative highway owner PLUS Expressway Berhad, has seen offers come and go. In May, Asas Serba Sdn Bhd, believed to be the brainchild of Tan Sri Halim Saad, made a RM50 billion offer to the government to take over 23 tolled roads and highways in the country. Asas Serba’s deal was sweetened by its undertaking that it would slash toll rates by 20% and commit to no further rate increases until 2038.

In a move to ensure the seriousness and credibility of bidders for PLUS Expressways, the company said it wants bidders to put down a refundable deposit of RM50mil by Jan 10, 2011. PLUS said the deposit would form part of the purchase consideration to be paid by the successful bidder for its business.

Be that as it may, there are some serious considerations that must be looked into to safeguards all interest especially that of minority shareholders and as not to set new dangerous precedent subsequent to the acquisition.

PLUS Expressways Berhad has been mulling over the offer by the UEM-Employees Provident Fund (EPF) Joint Venture group which will see a 51:49 special purpose vehicle (SPV) incorporated for the proposed takeover. The JV is offering RM23 billion or RM4.60 per share for all the group’s business undertakings ie to take over the assets and liabilities of PLUS.

Besides, the group is also seeking a waiver of all taxes incurred in respect of the highway concession assets for the rest of the concession period, which expires in 2030 ie relief from all stamp duties, real property gains taxes and other taxes and levies that may arise from the acquisition.

It must be strongly reminded that should the exemption for a tax waiver be given, the government will have to give up on taxes that average RM430 million a year based on PLUS’ income for FY2008and FY2009. This shall amount to a whooping RM9 billion loss of tax revenue over the next 20 years of the concession.

Argument for the tax waiver is premised on the fact that the compensation due to PLUS for not allowing toll rate hikes is much more than its tax expenses. It is also argued that part of PLUS’ compensation is already paid by deducting the tax liabilities.

Of utmost concern is the fear that should a blanket tax waiver be given, it would set a dangerous precedent to others, the like of Tenaga Nasional Berhad and other utility concessionaires who are similarly being deprived of passing its cost to consumers.

What would stop them from asking a tax waiver too? The precedent may encourage other major players in mega mergers and acquisitions in the property sector to ask for tax waivers as well? This may very well open-up a flood-gate for an endless tax waiver application. What would that lead to?

At a time when the government is on an ‘austerity drive’, selectively depriving the rakyat of subsidy due to them, you would not be deemed as business-unfriendly to regard this exemption as really foolhardy!

Just as PLUS is about to make their decision on the UEM-EPF offer, a little-known private company, Jelas Ulung Sdn Bhd, has appeared to join the fray with a takeover offer of RM26 billion. This is the fourth bid and the highest offer on the table for PLUS just days before an extraordinary general meeting (EGM) earlier scheduled for Thursday.

In a filing with Bursa Malaysia, PLUS Expressways’ board said it had received Jelas Ulung’s offer letter dated Dec 20, to take over the company’s business and undertakings, including assets and liabilities.

Jelas Ulung’s offer now appears to throw a spanner in the works of UEM Group and EPF’s joint offer. The new RM26 billion offer from Jelas Ulung works out to RM5.20 per PLUS Expressways share, much higher than UEM Group and EPF’s joint offer of RM23 billion or RM4.60 per share.

A check with the Companies Commission of Malaysia showed that Jelas Ulung is a new RM2 company registered last month. Its shareholders are Saharuddin Abdullah and Sumami Kiman owning one share each in the company.

Jelas Ulung directors are Tan Sri Ibrahim Mohd Zain and lawyer Datuk Ghazali Mat Ariff. Ibrahim have said that Jelas Ulung has secured a RM33 billion funding from BOCI Asia Ltd which is a subsidiary of Hong Kong-based Bank of China Ltd. BOCI will be lending RM33 billion and that they will raising another RM5 billion by issuing new Jelas Ulung shares to institutions, the private sector and high-net worth individuals.

Out of the RM33 billion raised, RM26 billion or RM5.20 a share will be used to buy PLUS and the remaining RM12 billion to pay off PLUS debts reported its directors. There will be no management change as assured by the directors because the current team is said to be doing a good job.

For the record, UEM and EPF, which hold 67.5 per cent of PLUS, is said to be abstaining from voting at the EGM. UEM Group is a unit of Khazanah Nasional Bhd, which holds a controlling 55.1 per cent stake in PLUS while EPF has 12.4 per cent.

While Jelas Ulung’s offer is quite out-rightly a better one, would Khazanah Berhad now allow the deal to proceed through. The main question confronting Khazanah is who actually is behind Jelas Ulung. This is arguably important as Khazanah views PLUS a strategic national asset, which should and must remain under government control. In fact, Khazanah took over UEM Group after the financial crisis as part of efforts to shore up investor confidence. Has that consideration changed?

If it hasn’t, this also means that Khazanah would be unlikely to accept the Jelas Ulung offer. So far, former UEM Group supremo Tan Sri Halim Saad has been speculated to be behind Jelas Ulung but this has been denied by those close to him.

Will Khazanah be obliged to accept or has to match the offer? Will unknown or no-track-record-of-financial-history entity be allowed to own strategic asset of the nation again? More importantly, will the tax waiver be granted as hand-out to business entity and creating bad precedent which could be costly to the government later?

After all said and rhetorised, much as yet to be seen done. What has really changed in Najib’s 1-Malaysia?