PLUS ... Oct10

Sources say the EPF has expressed an interest in the toll road concessionaire. It is learnt that the EPF’s interest in acquiring PLUS has put forward to Khazanah Nasional’s board during its meeting in early Oct 2010.

 

Currently, EPF is the second largest shareholder in PLUS with 12.27% stake. Khazanah is the single largest shareholder in PLUS with 55.24% stake.

 

According to sources, the EPF is looking at offering between RM4.40 to RM4.60 per share for the remaining shares it does not already own in the concessionaire. It is also learnt that the EPF is looking at up to 20% of the purchase being in equity and the rest being funded by debt.

 

It could not be determined whether the EPF has Khazanah’s support on the matter. However, no formal proposal has been submitted yet as the EPF is said to be seeking the green light from PM.

 

The proposals from EPF and MMC Corp are said to be offer no toll rate hike for the rest of the concession period.

It is understood that EPF’s proposal to acquire only PLUS is prompted by the fact that the concessionaire is a low risk, mature and high yielding asset and fits well with the fund’s profile.

 

EPF taking control of PLUS could be seen as being the most neutral acquisition proposal to date, rather than being driven by political motivations or private interests. Industry observers however pointed out that the risk of the government having to step in with financial assistance, should financing be a problem was unlikely as EPF is flush with cash.

 

However, at the proposed acquisition price of RM4.50 to RM4.60, the deal is not cheap, EPF could put its money to better user elsewhere.

 

With an acquisition price tag of up to RM20.8 billion and an additional RM10 billion for PLUS’s debt, it is a massive investments as it remains to be seen if the provident fund can extract value from the acquisition if no toll hikes take place.

 

An additional area of concern is EPF’ experience in running a tolled highway. It must be noted, however that PLUS’s management has been running the company well.

 

It is likely that EPF will have no issued funding the acquisition. At present, EPF sees returns of about 3% or less from MGS while PLUS presently pays a coupon rate of about 6.5% on its existing bonds.

 

Three different bids for PLUS are now said to be on the table. While each has brought with it differing offers in terms of price and motivation, it is up to Khazanah to pick which it thinks is best or wait for a better offer.