KUALA LUMPUR: Ekovest Bhd’s sale of a 40 per cent stake in the Duta-Ulu Kelang Expressway (DUKE) concessionaire for RM1.13 billion is to free up its financial resources for expansion, said executive chairman Tan Sri Lim Kang Hoo.
He said Ekovest wanted to expand its infrastructure division and other core businesses, including construction and property development.
Overall, the disposal was in line with the company’s strategy to monetise its matured infrastructure assets, he added.
Ekovest finalised the deal, which was first announced in September, with the Employees Provident Fund (EPF) yesterday.
In the share sale agreement, Ekovest’s wholly-owned Nuzen Corp Sdn Bhd sold the 40 per cent stake in Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (Kesturi) to EPF.
Lim said the deal enabled Ekovest to establish a long-term relationship with EPF, while its remaining 60 per cent stake in Kesturi would ensure it continued to operate the highway.
He said Ekovest was targeting RM200 million to be distributed through a special dividend, subject to shareholders’ approval.
DUKE is a 34km highway comprising two phases (DUKE 1 and DUKE 2), with a concession period of 54 years. The first phase is in operation and Phase 2 will be completed by June next year.
EPF will pay RM921 million in cash to Ekovest, with an additional RM209 million to be paid after the issuance of certificate of practical completion for DUKE 2 (of which RM149 million will be deposited in an interest-bearing designated account by Ecovest).
The deal is expected to be completed in the first quarter of next year.
EPF deputy chief executive officer (investment) Datuk Mohamad Nasir Abdul Nasir said the RM149 million outstanding payment would be released when the highway hit the internal rate of return of 11.5 per cent and above.
He explained that EPF had already paid the amount but it was “locked” in an interest-bearing designated account.
“EPF’s investments are quite diversified and one of the areas we are trying to grow is infrastructure because the nature of infrastructure investments are long term and meet our risk-return profile.
“This sort of investment gives us a real rate of return of our target of two per cent real rate (inflation plus two). We looked through this investment and this investment will be easily able to achieve that number.
“The minimum return we are looking at is nothing less than 10 per cent. The money is already locked in for the balance, and if it hits 11.5 per cent and above, we will release the RM149 million.”
Ekovest managing director Datuk Seri Lim Keng Cheng said DUKE 2 traffic was expected to double in 10 years after gradually going up by 10 to 20 per cent every year.
He said Ekovest expected the DUKE project to contribute 30 per cent to group revenue and that it could be a RM10 billion company by 2022.
Nasir said EPF currently had RM690 billion in assets and had set three per cent of it as infrastructure allocation. Of the assets, 51 per cent are in fixed income, 36 per cent in equities and 10 per cent in alternatives (private equity, infrastructure and real estate).
He also said the fund always kept its cash level at the three per cent level.
“We don’t hold too much cash as it is too much of a drag on our returns.”
Asked if EPF would be interested to invest in high-speed rail projects, Nasir said it was open to propositions but would look at the economics of each project and what the returns were.
“We haven’t seen anything yet. We will look at it when it comes to us, and the economics has to make sense and meet our requirements.”
VCB Capital chief executive officer and executive director Mohammad Amir Mokhtar said the deal was highly favourable to Ekovest as it had bought Malaysian Resources Corp Bhd’s 30 per cent stake in DUKE for RM300 million in 2014.
“It has been a good investment for Ekovest,” said Amir, but he cautioned that traffic flow would be crucial to ensure that the deal was favourable to both parties.
Trading of Ekovest shares on Bursa Malaysia was suspended on Monday. The stock was last traded at RM2.25 and will resume trading today.