Gamuda’s proceeds from water deal likely to end in Penang transport project

Gamuda Bhd (Aug 6, RM3.72)

Maintain neutral with an unchanged target price (TP) of RM3.80: Gamuda Bhd announced that its 40%-owned associated company, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) last Friday received a letter of offer from Pengurusan Air Selangor Sdn Bhd (Air Selangor) in respect of Air Selangor’s proposed purchase of 100% equity in SPLASH.

Air Selangor has offered to acquire from Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH Holdings), the entire 50 million ordinary shares and 350 million redeemable unsecured loan stocks of SPLASH for a total purchase consideration of RM2.55 billion or a 28% discount to its net book value.

This is at the lower range of the RM2.5 billion to RM2.7 billion buyout deal reported back in end-2016. The offer will be valid until Friday, and a sale and purchase agreement between SPLASH Holdings and Air Selangor shall be entered into no later than Sept 14, conditional upon due diligence inquiry and approvals from the relevant parties including authorities and shareholders, if applicable.

This, in our view, will finally offer a resolution to the protracted SPLASH debacle. At 0.72 times of book value, SPLASH would need to realise a loss of disposal of around RM992 million. However, the offer is significantly higher than the last deal offered at 0.10 times of book value which was subsequently rejected by SPLASH.

Gamuda’s 40% share in SPLASH is worth RM1.02 billion or around 41 sen per share. The deal’s proceeds, we believe, will be mostly utilised for projects such as Penang Transport Master Plan, working capital or to pare down debts. — PublicInvestment Research, Aug  6

This article first appeared in The Edge Financial Daily, on Aug 7, 2018.

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