Monday, May 28, 2018

The Edge: Dr Mahathir on toll concessionaires

The most recent Edge Weekly is quite a meaningful edition as it had the opportunity to interview Tun Dr Mahathir i.e. the first to do so in a private setting after GE14 where Pakatan Harapan had won the election.

I managed to get a copy during the weekend, and Dr Mahathir was enquired about his views on toll abolishment in stages as in the Pakatan Harapan's manifesto.  Here are some of it (but please go and buy a copy as there are much more to read especially on ECRL, HSR etc).

TheEdge: The national debt is already so high. The government has zero-rates GST, reintroduced petrol subsidy and is reviewing toll charges. These will cost the government money. How is it going to handle the situation?

Tun Dr Mahathir: Much of the work being done now is to downsize the financing of the government. By doing away with all these expensive projects, we are already reducing (debt) servicing costs.


I must admit that when we were campaigning, we proposed things so that the people would want us to be the government. But, of course, we have to manage these promises. For example, the toll review is not going to be immediate, it will be in a gradual manner.

Is the government going to acquire all the toll concessionaires?

Some we have already acquired. But we have to work with the private sector. I have read some of the proposals; they sound quite reasonable. You see, the main point is we don't want to punish the people (toll operators). At the same time, we have to ensure the government has some money to build roads.

Based on the above, it is unknown what he meant by "Some of the toll we have already acquired." Could he have meant that PLUS was for example is already 51% owned by Khazanah, the only government owned that I know which is owned by the government. Many other toll businesses are either owned through PNB (a government managed fund), EPF or some of them the shares are passively owned by Malaysian funds.

Toll business which traditionally have been the safer bet assets, have been hammered especially when several individuals have appeared to justify that they will follow the Pakatan Harapan's manifesto of abolishing toll in stages. From there, the toll concession shares have suffered drastic drop and some of them have been owned by my investment fund. These are WCE, Ekovest, LITRAK, MRCB.

What was initially feared is that the government will be using a clause which is available in the toll contract i.e. in the "expropriation clause" where the government can acquire them for national, public interest or public security.

Of course, the argument from many (including me) is that in doing so, it will collapse the capital and bonds market where toll concessionaire's bonds are among the highest in total.

What I think may happen?

As mentioned by EPF's CEO, the toll business acquisition has to be looked at holistically. In my mind, holistically means it has to be looked at in its entirety and it may involve Khazanah, PNB and EPF in acquiring these assets. The bonds may also be repackaged and new shares may also be offered in the capital market.

One may ask: But, it does not eliminate toll charges. Yes, but in reducing the toll charges, it is already a win. When the government together with the funds are able to negotiate a package with the toll owners, they can relook at an optimum charge towards the users as well as a decent return for the investors i.e. the funds.

It has to be understood, rightly so, some of these toll businesses have made quite a lot throughout the concession period. Among them are LITRAK and PLUS and these have been the topic of contention among the politicians like Tony Pua.

Hence, by acquiring the concessions outright at a fair price and repackage the toll rates, they may seem to be the best option.


Unknown said...

Will the removal of toll hurt Airasia's business?

felicity said...

AirAsia is a business with exposure in many countries. In many flight sectors, it is the leader and that include KL Singapore, KL Penang. Other than that it is also leader in KL Bangkok and many others. Certain routes definitely is more profitable but I doubt it cause great impact to the company. Abolishment of PLUS also takes time. It also serves different market. Answer is no.

Unknown said...

So overall the best option is government will reduce toll rate by paying the price like subsidiary? So naturally investor will get special dividend or not remain unknown. Maybe toll operator will pay down debt ?

networking said...

Hi Felicity,

What is your opinion on EKOVEST ends up with a minimum RM1.39 cash per share if it dispose the toll division to government ?

felicity said...

Hi Networking

Sorry missed your question. There is no doubt that if Ekovest is able to sell at fair price, it is now below valuation.

Now depends on whether it is able to get that fair price.