PUNCAK and SPLASH reject Selangor offer

 

What Puncak Niaga wants:

• A compounded rate of return on equity of 15% per annum.
• Syabas to pay all receivables due to Puncak Niaga.
• Residual cash in PNSB and Syabas to be returned to Puncak Niaga.
• No due diligence post acceptance of takeover offer.
• Removal of the arbitration clause.

What Gamuda wants:

• Takeover price based on net asset value.
• Remain as operator of Splash.
• Valuation that takes into account 16 years remaining life of its concession.
• Arbitration panel to determine internationally accepted valuation method.

Why KPS accepts offer:

• No renewal of its raw water abstraction licence.
• Needs cash to meet debt obligations.
• The prospects of Water Services Industry Act.

PETALING JAYA: Puncak Niaga Holdings Bhd and Gamuda Bhd are standing their ground for a better offer from the Selangor Government for their water assets, indicating that the entire exercise is not going to be a straight-forward affair as envisaged.

 

As expected, only Kumpulan Perangsang Selangor Bhd (KPS) has accepted the Selangor Government’s offer.

Puncak Niaga controls two water concessions which are Puncak Niaga Sdn Bhd (PNSB), a water treatment plant operator, and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) that have the mandate to distribute water in the state, Kuala Lumpur and Putrajaya. Gamuda has a 40% stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).

Puncak Niaga, in a statement to Bursa Malaysia, reiterated its conditions that included a compounded return on equity of 15% per annum taken as compensation to PNSB for the loss of future income.

Puncak Niaga is also seeking receivables due and outstanding from Syabas to PNSB to be paid to the parent company as these amount for services that have already been rendered.

In addition, Puncak Niaga also sought to remove the arbitration clause as it claims that it violates the spirit of “laissez faire”.

The company also felt that other valuation methodologies were not within the scope of the arbitration.

“Such a clause on arbitration is unfair to the shareholders including the minority shareholders,” Puncak Niaga said.

It added that Syabas had previously received written instruction from the Federal Government, which holds one golden share, that the negotiations must be done on a willing-buyer-willing-seller basis.

As such, Puncak Niaga said the inclusion of the arbitration clause was clearly against the directive of the owner of the golden share, which is the Federal Government.

However, the Selangor Government had signed a memorandum of understanding (MoU) with the Federal Government on Feb 26. According to Mentri Besar Tan Sri Khalid Ibrahim, the agreement effectively compels the Federal Government to facilitate the state’s efforts to take over the water assets.

The Selangor Government has offered RM9.65bil to Puncak Niaga, KPS and Gamuda Bhd to acquire Splash, PNSB, Syabas and Konsortium Abass Sdn Bhd. The offer was made based on a 12% return on equity per annum and water assets to be acquired by Pengurusan Aset Air Bhd.

Puncak Niaga is the biggest water treatment operator in Selangor by virtue of its 100% ownership of PNSB and its 70% interest in Syabas.

Splash is 40% controlled by Gamuda, 30% by KPS and another 30% by the Sweetwater Alliance Sdn Bhd, a company linked to businessman Tan Sri Wan Azmi Wan Hamzah.

The fourth water treatment concessionaire is Konsortium Abass, which is almost wholly-owned by KPS, which in turn is a 57.9% subsidiary of Kumpulan Darul Ehsan Bhd.

Concurrently, Gamuda said the net offer was lower than its net asset value (NAV) and was “not reasonable for acceptance by the company”.

“The net offer of RM250.6mil for Splash when compared to the NAV of Splash amounting to RM2.54bil as at Dec 31, 2013 will result in a huge divestment loss of RM920mil to the company. The offer of RM250.6mil is below 10% of Splash’s NAV. The offer is therefore, not reasonable for acceptance by the company,” Gamuda said.

Gamuda told Bursa it had informed KDEB that it was, however, amenable to accepting an offer by KDEB to acquire the equity of Splash, upon mutually agreed terms on a willing buyer-willing seller basis based on several conditions including payment of Splash’s NAV.

“The consideration for the two previous offers of July 2009 and February 2013 were close to the NAV of Splash and the company had accepted those offers. Anything less than that will result in losses on divestment to Gamuda,” it said, adding that the company could not justify to its shareholders the acceptance of such a huge loss.

In the interest of moving forward and so as not to hold back the consolidation exercise, Gamuda said the shareholders of Splash are agreeable to KDEB’s offer for international arbitration on the valuation of its equity.

However, it said the arbitration panel should be given the freedom to make its own decision on the valuation based on internationally-accepted methods and not be confined to using one that has been proposed by KDEB, as it now stands in their February 2014 offer.

Meanwhile, KPS said in a filing with Bursa that the acceptance by the company should be conditional on the approval of the shareholders of KPS at a general meeting to be convened.

It also said that the company had a right to refer any dispute with regard to the determination and values in respect of its equity in Splash and Titisan Modal Sdn Bhd respectively to arbitration in accordance with the procedures as set out in the offer letters.