Prasarana eyes potential REIT spin-off

KUALA LUMPUR (April 1): Prasarana Malaysia Bhd, which targets to turn profitable in the second half of next year, said it is looking at spinning off some of its assets into a real estate investment trust (REIT) and pare down its debt.

A search with the Companies Commission of Malaysia (SSM) revealed that the loss-making public transport service operator has total current and non-current liabilities of RM15 billion as of Dec 31, 2014. The debt amount is 16% higher than the previous year of RM12.9 billion.

Prasarana president and group chief executive officer Datuk Azmi Abdul Aziz said the company is currently undergoing a revaluation of its assets after 20 years, and once the exercise is completed this year, it plans to sell some assets to the REIT.

“We are talking with potential investors [about investing in the REIT]. From our engagement, there are some interested parties, mostly foreign parties,” he told The Edge Financial Daily in an interview yesterday.

“They want to invest, get profits from the investment. What we need is the initial capital to pay our debt,” Azmi said, adding that Prasarana, which is wholly-owned by the Ministry of Finance, will ensure the government retain control of the assets.

Prasarana currently owns and operates two light rail transit (LRT) lines — Kelana Jaya and Ampang, the KL Monorail line, as well as the Rapid KL bus services including Bus Rapid Transit-Sunway Line, Rapid Penang and Rapid Kuantan.

As of Dec 31, 2014, the company’s current and non-current assets stood at RM16.8 billion.

According to Azmi, the company is considering putting the land and properties where the LRT and KL Monorail stations currently sit into the REIT.

To make the listing process more effective, Azmi said Prasarana is also undertaking value creation initiatives to the company’s properties and assets such as the new LRT3 line, which connects Bandar Utama, Damansara and Johan Setia in Klang, is being designed on a much better approach with transit-oriented development (TOD).

Meanwhile, Azmi, who took the helm of Prasarana on Jan 1 last year, conceded that he is facing difficulty paring down the company’s debt with existing borrowings.

“I found that to service the [existing] debt, we have to borrow more. And overtime, the hole will get bigger and bigger. As such, we cannot continue to do this. That’s why we have to try something new,” he said.

Azmi said although Prasarana is revaluing its assets for the first time with no reference, based on the increase in riders and value-added activities in stations, he expects a “significant” appreciation from the exercise.

“Although the depreciation [of the assets] will also go up along with the value, we will lengthen the depreciation, so it would not be that high,” he added.

On the viability of setting up an infrastructure REIT, Azmi believes that the management is able to explore the viability with regulators once the revaluation process is completed.

According to SSM, Prasarana’s net loss widened to RM885.6 million for the financial year ended Dec 31, 2014 (FY14) from RM619.32 million in FY13. Revenue rose by a marginal 1.2% to RM490.23 million from RM484.48 million.

Meanwhile, Azmi is confident that Prasarana will attain positive earnings before interest, taxes, depreciation and amortisation across all business entities next year, supported by plugging operational shortfalls and business expansion.

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This article first appeared in The Edge Financial Daily, on April 1, 2016. Subscribe to The Edge Financial Daily here.