From Gamuda's viewpoint, ALR highway takeover a win-win

Whilst Gamuda is still considering and deliberating the offer from Amanat Lebuhraya Rakyat Berhad (ALR), and we will duly announce our decision on their offer immediately after our board has made a decision on it, we would like to make the following comment(s):

The toll industry has been in a quagmire for quite some time to find a suitable solution to alleviate the government of Malaysia from their burden of paying toll subsidy annually, which Works Minister Fadillah Yusof had mentioned previously on April 30, 2021, to be RM2.25 billion for 2021 alone (for the entire industry).

And yet, with the government being responsible to always ensure the sanctity of contracts as well as not wanting to burden the motoring rakyat with any toll rate hikes either (which is the obvious solution to reduce or eliminate the toll compensation subsidy), thus solving this quagmire has been very difficult indeed. Up until this week, that is.

As of Monday, with ALR’s proposed solution and offer - this quagmire seems to have been resolved. With their proposed structure, both the rakyat and the government win since:

1. ALR’s concession toll rate would be maintained at the present rate until the end of the concession, i.e., no more toll hikes – significantly benefiting the motoring rakyat, and yet;

2. The government no longer needs to pay any toll compensation subsidy either, since ALR’s new concession rate is equal to the present toll rate – thus saving the government RM4.3 billion (net of tax waiver) as reported by Fadillah himself yesterday.

3. These valuable savings can then be further spent on other crucial, more urgent development expenditures and basic infrastructure for the wellbeing of Keluarga Malaysia, as the government deems fit - further benefiting the wider rakyat and Keluarga Malaysia as a whole.

Regarding point (1) above, the savings to the motoring rakyat of the highways are:

For example; Kesas users only pay RM2 instead of RM3 at each of the toll plazas with savings of RM1, or 50 percent savings. Similarly, Sprint (Pantai) users only pay RM2.50 instead of RM4.50; a saving of RM2, or 80 percent savings.

Hence, in this manner – the motoring rakyat also saves RM5 billion directly (which is the same gross compensation savings saved by the government to keep the tolls subsidised at artificially low rates).

The other observation we would like to make with respect to ALR’s proposal is the comparison with the last offer we received in 2019 from the government as much has been said about the apparent similarity between the two.

As far as we can see, the key differences are:

1. Lower value of buyout: ALR’s total enterprise value is lower than the 2019 offer by RM720 million as follows:

   

   The primary reason for this difference above is because ALR’s offer is dated two years after the previous offer, and therefore, the cash flow from those two years would not be included in ALR’s discounted cash flow valuation of the highways, which results in a lower enterprise value number. Both offers use the same discounted cash flow valuation methodology, which is the market norm and industry standard to value highway concessions.

2. Off government balance-sheet: ALR’s proposal has no recourse to the government at all, i.e. there is neither a government guarantee nor any implied financial undertaking by the government to the providers of funds to ALR. This clearly is very different from the 2019 offer, where the government undertook to make the acquisition directly and have the funding on its own balance sheet.

   Hence, under the ALR proposal – the government’s upside of RM4.3 billion net compensation savings is truly at no cost to the government. This is an important improvement, especially today, since the government must be focused on optimising all resources in helping the rakyat and our economy recover from the Covid-19 pandemic crisis.

3. Reduction of concession periods: ALR is obligated to redeem its funding (sukuk) as soon as it can, and once it does, it must return all four highway concessions back to the government. In that sense, any extension given to the concessions under ALR is NOT mutually exclusive from its actual traffic performance, as was intimated by Fadillah in his announcement of ALR’s proposal.

   Higher actual traffic achieved will reduce the actual extension required because ALR’s sukuk will be redeemed much earlier. In other words, the higher the traffic, the shorter the concessions.

   We applaud the government for this pro-rakyat innovation where the concession can be shortened and most probably will be. Based on Jacobs traffic projection of a modest 1.7 percent traffic compound annual growth rate growth, all the concessions are expected to be returned to the government by the end of May 2032.

   We did not notice this feature in the previous 2019 offer.

4. No spending by the government: Because ALR is buying the highways and not the government as per the 2019 offer, the government today does not spend a single sen on the acquisition, nor does it have to worry about the operations and maintenance expenditure of the highways.

5. Privatisation agenda intact: With the ALR structure, effectively, the government today maintains its current privatisation agenda, unlike the nationalisation of these highways under the previous 2019 offer.

   Via ALR, the present government “gets the cake and eats it too” because whilst its privatisation policy is still maintained, it does save RM4.3 billion in net compensation savings without spending a single sen and additionally with no recourse to the government either.

   We sincerely thank the ALR board for the offer and applaud the personal commitments of each and every one of their board members in their sincerity to help both the government and rakyat to achieve this innovative and unique win-win-win solution.

Hence, like Fadillah, we pray for the success of ALR in meeting all of its condition precedents to complete the deal, and we believe the other concessionaires should also answer the minister’s clarion call for similar restructurings to ease the government’s burden on compensation payments whilst not burdening the motorists of Keluarga Malaysia. - Mkini

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MOHAMMED RASHDAN MOHD YUSOF is Gamuda Berhad deputy group managing director.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.