Thursday, December 18, 2008

Water Related Stocks Playing Soon?

PAAB to assume RM15b water asset loans
PUTRAJAYA: The federal government is expected to assume some RM15 billion worth of loans under its planned acquisition of state and private water assets in Peninsular Malaysia.

The amount involves some RM7.9 billion owed by state governments to the federal authorities, and another RM7 billion worth of bonds issued by private water concession holders.

“It (RM15 billion) is a rough estimate,” Pengurusan Aset Air Bhd (PAAB) chief executive officer Suhaimi Kamaralzaman told reporters in Putrajaya yesterday after a signing ceremony for the transfer of water assets in Melaka to PAAB under the National Water Services Industry Restructuring Initiative.

Melaka got the ball rolling, with the signing of the agreement to transfer RM889 million worth of water assets to the federal authorities, and in return, the state was relieved of its RM770 million worth of loans. As the value of the assets exceeds the loan, the differential sum of RM119 million will be channelled back to the state.

Deputy Prime Minister Datuk Seri Najib Razak, who witnessed the signing ceremony, said: “The involvement of the federal government has created a water services model which I believe will spur the local sector into a holistic, efficient, effective, competitive and established industry.”
The national project is seen as a win-win deal, aimed at improving the efficiency of the local sector. PAAB, a unit under the Minister of Finance Inc, will take over the water assets, and in exchange, assume the water-related debts.

The acquired assets will be leased back to the state government which will undertake the water distribution portfolio, and infrastructure maintenance, while the responsibilities of building and financing water infrastructure projects will fall on PAAB’s shoulders.

To date, PAAB has secured a RM3 billion loan facility from a local financial institution, according to Suhaimi, who also indicated the company’s intention to issue ringgit-denominated bonds to finance the company’s future undertakings.

More states are expected to climb onto the bandwagon. Talks are already in advanced stages to acquire water assets in Negri Sembilan, Johor and Pahang, In non-BN- held states, Suhaimi said the Kelantan state government had approved in principle the implementation of the national initiative in the state.

“Perak, Penang and Kedah have got a change of government. We have explained to the previous state governments and now we have to conduct a new roadshow,” he said. According to news reports, Selangor, meanwhile, had until March 31 next year to do so pending the finalisation of its water assets’ collective value.

AmResearch Sdn Bhd expects Puncak Niaga Holdings Bhd and Kumpulan Perangsang Selangor Bhd (KPS) to be winners in the water asset takeover deal. This is because both companies will be able to monetise the embeddeed value of the water concession assets, hence, boosting the valuation of the shares in both firms.

“Ideally, state-backed KPS remains the best candidate to house all four water concessionaires in Selangor under a single holistic structure. This is in line with the spirit of the new water legislation.

“But things are still in a state of flux due to intense political lobbying by various parties with vested interest along Selangor’s water supply chain. Moreover, the structure of the migration exercise remains uncertain - there could be multiple operations and maintenance licences being issued,” AmResearch analyst Mak Hoy Ken wrote in a note. Mak recommends a hold for Puncak Niaga and KPS with fair values of RM2.75 and RM1.48, respectively.

Puncak Niaga fell three sen to RM2.58, while KPS rose two sen to RM1.45 yesterday.

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