Source: THE EDGE MALAYSIA , Monday November 12, 2007
Oleh : Jose Barrock

Market talk that Puncak Niaga Holdings Bhd is a takeover tar-get is not entirely new. There have been several news reports on speculating such a possibility but Puncak Niaga has vehemently denied them. Late last week, however, there was a change in tune, when Puncak Niaga officials finally spoke to an analyst from a bank-backed research house.

As predicted earlier, Selangor state investment arm Kumpulan Darul Ehsan Bhd (KDEB) and its 52 % unit Kumpulan Perangsang Selangor Bhd (KPS) have been linked to this takeover. It is understood that KDEB has plans to consolidate the Selangor water sector to create a more efficient system for the supply 01 water in the state.

According to the analyst's report, Puncak Niaga officials were aware of the takeover plans by the state government but had yet to receive any formal offer. The research house also said the issue with the takeover or privatisation lay largely in pricing.

The analyst predicted that the takeover price could range anywhere from RM9.70 to RM12.15 a share. This is quite a premium to Puncak Niaga's current share price. Puncak Niaga's stock closed at RM5.20 on Wednesday, giving it a market capitalisation of RM2.1 billion.


The research house has a target price of RM6.90 for Puncak Niaga, partly premised on it being a privatisation target.

At prices of between RM9.70 and RM12.15, KDEB, or its unit KPS, would have to fork out some RM4 billion to RM5 billion to take over the whole of Puncak Niaga. This may be a huge premium to Puncak Niaga's market value but the analyst said it is in line with the value of the company's water assets, which include concessions from the Selangor government and 29 water treatment plants across the state.

But will the offer price be attractive enough for Tan Sri Rozali Ismail, currently Puncak Niaga's controlling shareholder, to make an exit?

Rozali and his brother Datuk Shaari Ismail control as much as 41 % of Puncak Niaga via Corporate Line (M) Sdn Bhd and Central Plus (M) Sdn Bhd. Rozali is a powerful corporate figure with much political clout.

As the Selangor investment arm, KDEB may be in a stronger financial position to take over puncak Niaga than its listed unit KPS. KPS al. ready has a stretched balance sheet.

As at end-June this year, KPS had as much as RM208.3 million in its kitty while the company's receivables stood at about RM538.3 million. For the period under review, KPS' current and non-current liabilities amounted to about RM790 million and RM1.4 billion, respectively.

Puncak Niaga's net assets per share stood at RM2.99 as at end-June. The company had some RM1.1 billion in cash and about RM352.4 million in trade and other receivables as its current assets. It also had some RM481 million in long-term receivables.

Puncak Niaga's main assets are its 29 water treatment plants and its 70% equity in Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), which supplies treated water to Selangor, Kuala Lumpur and Putrajaya.

For the six months ended June, Puncak Niaga posted a net profit 01 RM52.8 million on revenue of RM682.5 million. Net profit and revenue increased by almost 139% and 15%, respectively, from a year ago.

Its earnings per share improved by about 85% to 12.8 sen for the period in review from a year ago. The better performance was due to better water revenue.

 

EARLY CONSOLIDATION

The second concession, awarded a year later, involved the design, construction, operation and maintenance of a 950-million litre-a-day treatment plant under the Sungai Selangor water supply scheme project. Both these concessions last until end-December 2020.

In January 2005, Syabas was granted a 30-year concession to assume the responsibilities of PUAS, which included supplying and distributing water to Selangor, Kuala Lumpur and Putrajaya.

The consolidation ball started rolling pretty much earlier. In April last year, KPS, via its 55 % unit Titisan Modal Sdn Bhd, took over the entire equity and interest in water concessionaire Konsortium Abbas Sdn Bhd for RM528.6 million.

Konsortium Abbas is the concessionaire for the Sungai semenyih Water supply scheme, which supplies as much as 545 million litres of water a day to Syabas.

KPS also has 30 % equity in Syarikat Pengeluar Air Selangor Holdings Sdn Bhd (SPLASH). and a 20 % equity in Taliworks Corp Bhd, which has its mainstay in the operation and maintenance of water treatment plants and distribution systems.

It is also interesting to note that both Puncak Niaga and KPS are vying for the RM5billion Langat 2 water treatment project, which can supply 2.26 billion litres of treaed water per day. Tenders are expected to be called for next month.

However, things may be speeded up with new legislation. Last week, Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik said the Water Services Industry Act and the National Water Services Industry Act, which were passed in mid-2006, would come into force early next year.

Lim said these Acts will result in water companies being run by corporatised state-owned companies with the water and sewerage services merged.

Both the Acts aim to combat non-revenue water in the country. The average non-revenue water rate in Malaysia isabout 38 %, while in some states it is as high as 50%.

Non-revenue water represents water that has been produced but does not reach a paying end-user, as a result of leaks, theft, or through legal usage for which no payment is available.

Among other things. the new legislation allows a single operator to extract, treat, pipe and bill for water services.

The federal government, which will own the assets under Pengurusan Aset Air Bhd, will fund the development of the water assets.

However, the situation with regard to water concessionaires such as Puncak Niaga in Selangor is still uncertain. That's because it has spent large sums in capital expenditure. And that in turn would mean that anyone wanting to get control of Puncak Niaga or its concessions will have to pay a hefty sum.