SELANGOR WATER – WHO IS PLAYING POLITICS?

by drrafick

• I guess this post is not likely to win the support of people who had firm believe that whatever the FEDERAL GOVERNMENT (FG) does is right and whatever solution that PR SSG has to offer is inferior. My view is simple. Any governments of the day that can guarantee a lower water cost to the public deserve my support. The governments that can ensure water bills stay low are thinking about the people and therefore should deserve all the support from all quarters.
  

• Until recently, the issue of water in Selangor was quiet. Today SYABAS announced free water for the poor for a year. Who are considered poor and how poor is being defined has not been publicly announced. Going by FG statement that there are only 108 hard core poor people left in this country, I guess less than 30% would be in Selangor. Why for a year only? I guess the poor will no longer be poor after 12 months or the 13th GE will be soon and not later than a year from today. Since the inception of water issue, the SSG wanted the water operations to be reverted back to the state. This was in line with WSIA as well as agreed by the FG before 2008 election.
  

• The SSG wants it back because it feels it can deliver a lower water cost to the people. Obviously the detractors would not agree and FG would not like it as it will create huge political repercussion among the people in the state. It will enhance people support of PR in Selangor if they could maintain or lower water prices. A responsible FG would have acted in a manner that would facilitate such intention but because of politics, it is not happening.
  

• I was shocked to read a newspaper clippings from PAAB site about the bond take over by a SPV under PAAB. Since there are no denial from PAAB and the article is scanned and place there, then I assumed it must be true. Do READ them here and let me know what do you think? Please pay attention to how the bond is to be valued. It is pretty obvious that FG decision to buy back the bond at PREMIUM is to deny SSG from having the strategic advantage in getting controlled of SYABAS or PN. A control that would effectively ensure that they would be able to continue their promises to reduce the consumer water bills.
  

• Key points of the article are:
  
  • The offer is made on the book value and not the outstanding amount. WHY? BOND SHOULD BE VALUED BASED ON PV OF FUTURE EARNINGS AND NOT ON THE BASIS OF BOOK VALUE.
    

  • The offer is made with the yield to maturity AND book value.WHY COMBINE THE TWO. THIS IS AN UNUSUAL COMMERCIAL PRACTICE. IT SHOULD BE ON THE BASIS OF YTM (YIELD TO MATURITY) OR IN OTHER SIMPLER LANGUAGE, PRESENT VALUE OF FUTURE EARNINGS. (RM1 TODAY IS WORTH MORE THAN RM 1 THAT IS BEING PAID NEXT YEAR. YOU CAN ALSO READ ABOUT BOND VALUATION HERE)
    
  • A bondholder (the bondholders consist of several banks, the EPF and Great Eastern) said there was “no hair cut” but a premium payment. WHY A PREMIUM? BY RIGHT IT SHOULD BE ON THE BASIS OF A DISCOUNT BECAUSE:
    
  • IT HAS BEEN RATED DOWNWARDS
    
  • THE CONCEPT OF PV OF FUTURE EARNINGS CERTAINLY ENTITLED THE PARTY THAT IS TAKING OVER HUGE DISCOUNTS
    
  • THAT MEANS SHAREHOLDERS WHO HAS ENJOYED SPECIAL DIVIDENDS PREVIOUSLY ARE GETTING AWAY WITHOUT HAVING TO BE RESPONSIBLE FOR THEIR ACTIONS OF NOT SERVICING THE BOND. THEY ARE GETTING OFF SCOT FREE!