PETALING JAYA: The proposal to restructure four toll expressway concessionaires in the Klang Valley, including Gamuda Bhd and Lingkaran Trans Kota Holding Bhd, offers hope of a smoother road ahead for the broader highway sector, according to RAM Ratings.
“This is a welcome development following a hard-hitting past few years which saw volatile traffic volumes due to mobility curbs amid the pandemic, sensitivity over toll rate hikes in a tough economic climate, and rising government compensation payments to concessionaires,” it said in a report yesterday.
The rating agency noted that the continued toll increase deferrals in a single year is reported to cost the government RM2.25 billion in compensation while its narrowing fiscal headroom makes the abolition of tolls implausible, considering the high compensation sums payable.
Accordingly, it sees the offer Amanat Lebuhraya Rakyat Bhd to acquire highways partly owned by Gamuda signals stronger intent by the government to seriously address the restructuring of toll rates across highways nationwide by end-2023, based on a parliamentary response by the Works Ministry.
“If successful, this restructuring model could serve as a blueprint for further renegotiations of other expressway concessions,” said RAM.
It elaborated that Amanat’s proposed solution to the impasse in the sector – via the acquisition of four highways partly owned by Gamuda for RM5.48 billion – achieves different but complementary objectives; it seeks to reduce the public burden as there will no further rate hike until the concessions expire and provides the some respite to the government from the ballooning annual compensation bill for non-revision of scheduled toll rates
The proposal also takes into consideration interests of other stakeholders, including lenders and shareholders.
“On balance, the tenures of the four highway concessions are expected to be restructured and lengthened,” said the rating agency, pointing out that Amanat was established under the Companies Act 2016 to function solely as a holding company of highway concessions while its shareholders are not profit motivated.
It said the non-profit entity’s role and responsibilities will entail a high degree of social accountability in keeping toll rates affordable in addition to settling its debts and returning the highway assets to the government in the shortest possible time frame.
“Owing to its social impact and objectives, Amanat’s offer, among other conditions, is contingent on the four concession companies and itself being tax-exempt entities.”
The proposal is valid up to end-April, following which a definite agreement will be inked, expected by end-July 2022.
RAM noted that the necessary approvals of the buyout offer from shareholders, lenders and the authorities are still pending, as is the due diligence on the cumulative RM5.48 billion valuation of assets to be acquired.
“Given the significant role of infrastructure funding in the domestic capital market (having funded up to RM103.6 billion in highway and highway-related transactions since the 1990s), it is important for any funding solution proposed by Amanat to consider the preservation of investor confidence as key to the continued sustainability of financing/funding for this sector,” it said.
At this point, the rating agency stated the financial details and funding adopted for the proposed acquisitions, nor the resolution of the sukuk raised by the respective concessionaires, have yet to be made public.
RAM stated the proposed sale of the highway concessions does not have an immediate rating impact on Gamuda’s and its subsidiaries’ debt programmes. It said disposals will reduce the group’s business diversity as the concessions segment is a significant and relatively stable earnings contributor accounting for 27% of its pre-tax earning for FY2021 despite the ravages of the pandemic.
“Nonetheless, RM7.4 billion of construction contracts in Australia and Singapore recently awarded to Gamuda will, in our view, lessen the impact, boosting long-term earnings visibility and representing important breakthroughs into these markets.”
The disposals are expected to yield proceeds in excess of RM2 billion strengthening Gamuda’s balance sheet to a net cash position.
It pointed out as the proceeds could be channeled to new construction and property development projects and/or to reward shareholders via special dividends, the group’s longer-term financial impact will hinge on the use of the sale proceeds.
In the interim, RAM will maintain surveillance of the ratings of the relevant highway concessionaires and Gamuda’s issue ratings and it will reassess the ratings for credit impact when details of the proposed restructuring exercise become available.
“Meanwhile, we understand it is business as usual for the four highways until the implications of the buyout are addressed.”
