SEEK BETTER SOLUTIONS! Imagine,Umno-BN govt actually considering to LENGTHEN toll concession period

PETALING JAYA - Any renegotiation of toll concession agreements could create a messy situation, where the toll concessionaires may have to go back to their borrowers to seek refinancing, should the government decide to lengthen the concession period.

Deputy Prime Minister Tan Sri Muhyiddin Yassin said last Wednesday that the government will not raise toll rates in 2014, but may consider a renegotiation of toll concession agreements after a thorough review of existing concessions.

Renegotiation, said market observers, could include a possible extension of toll concession period as well as the adjustment on the quantum of the toll rate hike, while some do not rule out the possibility of a toll rate cut.

They believe that should there be any major changes to the existing concession agreements, the toll concessionaires will have to go back to their banks to refinance their highway projects.

And in any case, it is highly unlikely that the government will step in to ensure that interest rates are favourable to toll concessionaires.

Strong Opposition coalition to check and balance

A source involved in the highway concession business told SunBiz that due to a strong opposition party, he does not expect the government to negotiate any refinancing plan with the bank on behalf of the toll concessionaires.

"If they (the government) can talk, we would have got a cheaper interest rate by 2%, because the government has a better credit rating compared to any corporate institutions," the source said.

A bond expert in a local agency told SunBiz that the toll concessionaires may face many "hassle" in seeking project refinancing and could be stuck in a "mess".

"The longer duration or tenure will translate to a higher risk of loan repayment or bond redemption, hence the interest rates will also be higher. That is the rule of thumb for bank borrowing as well as bond issuance," he said.

"The original loan fit the expected cash flow of the highway project. If there is any cash flow 'jam' due to the lengthening of concession period or delay of toll rate hike, they will have to refinance it to meet the cash flow," he explained.

RM400 mil compensation more than enough to keep operators happy

As a result of maintaining the toll rate for 2014, the government will pay RM400 million in compensation to expressway concessionaires in the Klang Valley which were supposed to raise their toll rates.

The RM400 million compensation due for 2014 will be the highest in seven years and will bring the government's cumulative compensation to RM1.5 billion since 2008, according to CIMB Equities Research.

Its analyst Sharizan Rosely estimated that the average toll-rate increase for major highways could have been 43% for the 14 major urban and intra-urban highways.

"But no hikes should still be a net positive for the toll concessionaires, in our view. The government will honour its concession agreements and pay the compensation due. A no-hike outcome also eliminates risks of a dent in traffic volume, which usually dips for 3-6 months after a rate increase," he said.

Sharizan said Gamuda Bhd and IJM Corp, which owns most of the highways due for toll-rate increases this year, will likely benefit from a bigger share of the compensation due.

The decision not to raise toll rates came as a relief to the public that are already facing the brunt of the government's subsidy rationalisation initiative.

Already, the government has said it will introduce a 6% goods and services tax in April 2015. This year electricity tariffs were raised and many speculate a strong possibility of another fuel price hike, the last being in September last year. - The Sundaily