Government weighs possibility of buying PLUS

The article has been amended for accuracy.

KUALA LUMPUR (Oct 14):  While he keeps an open mind to evaluate proposals from the private sector to buy out the country’s largest toll concessionaire PLUS Malaysia Bhd, Finance Minister Lim Guan Eng said the government is also weighing the possibility of it taking over the company.

“We have the magic bullet; we are able to borrow at very low rates — that is what we want to take advantage of,” Guan Eng told The Edge Financial Daily in a post-budget interview yesterday.

According to Guan Eng, Khazanah Nasional Bhd, which controls a 51% stake in PLUS, submitted a proposal to sell PLUS to the government because the public investment arm is worried about the diminishing of assets by selling to private parties.

The Employees Provident Fund (EPF) owns the remaining 49% of the company whose total debts amounted to RM30 billion.

Guan Eng reiterated that any proposed acquisition of toll concessions will be evaluated on the principle that the plan will have zero impact on the government’s debt service charges, and will entail any compensation on freezing toll hikes. Furthermore, there must be substantial savings for road users.

“We (the new government) reject the policy of socialisation of losses and privatisation of profit.

“I want to see whether we can be part of this change. Of course in the process I could be ‘chopped’ because I am fighting with big interests,” said Guan Eng, stressing that any offer to buy out PLUS has to be at a price that Khazanah and the EPF would agree upon.

He pointed out that if PLUS’ toll assets were to be sold at below cost, it will invite criticism of the two shareholders, namely Khazanah and the EPF, and the government, noting consequently, the government would be accused of directing both Khazanah and the EPF to sell. As a result, both the EPF and Khazanah will be perceived as not being independent.

“And [in that case], again people will accuse us of cronyism. In addition, the bondholders will downgrade [the debt papers],” he explained. PLUS, which owns the North-South Expressway that forms the backbone of the country’s road infrastructure and four toll concessions, has attracted three acquisition proposals from the private sector. Maju Holdings Sdn Bhd, which is controlled by Tan Sri Abu Sahid Mohamed, is the first to bid for PLUS at an enterprise value of RM34.9 billion, which includes debts.

The recent two proposals came from the Malaysian-led private equity fund RJR Capital and Widad Business Group (WBG).

RJR is offering RM3.5 billion cash to buy out PLUS plus liabilities.

WBG offers two options, with the first being taking over of the 51% stake owned by Khazanah for RM1.5 billion cash, where the balance 49% will remain with the EPF. The second option is a full takeover of the concessionaires from Khazanah and the EPF for RM3 billion cash.

All three offers come with toll reduction with the condition of an extension of the concession period plus government guarantees of debt papers. Besides, The New Straits Times in August, quoting unnamed sources, reported that the government wanted to take over 15 highway concessions through Khazanah by setting up a highway trust.

The government needs time to evaluate the proposals from the private sector that involve the government guaranteeing the debt papers, said Guan Eng. “The government will be responsible if there is any loss [given that the government guarantees the bond papers after takeovers by the private sector]. Be patient and wait for announcements,” he added.

Guan Eng admitted that it is not an easy feat for the current government to abolish tolls progressively by acquiring toll highways as stated in Pakatan Harapan’s 14th general election (GE14) manifesto.

“At least we are keeping the first step — the first stage of the promise by making the reduction [in tolls]," he said.

Last Friday, Guan Eng announced that the government is granting an 18% discount on the toll rates on all highways owned by PLUS.

In his Budget 2020 address, the minister noted that an 18% discount on toll charges will result in RM1.13 billion in savings for highways users in 2020, and up to RM43 billion over the entire concession period until 2038.

"It will cost the government RM303 billion to take over all toll concessions in the country. If the government has half of the amount, we could gear up to raise the remaining sum.

“But what happened was that half of the sum was stolen by 1MDB (1Malaysia Development Bhd), [plus] mismanagement of Lembaga Tabung Haji and LTAT (Lembaga Tabung Angkatan Tentera).

“The problem is that the government doesn’t have the money. We thought the government had the money but it was stolen,” said Guan Eng when asked about the government’s objective to reform toll roads.

This article first appeared in The Edge Financial Daily, on Oct 14, 2019.

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