The SMART Tunnel in Kuala Lumpur is one of the four highways the government plans to acquire. PIC BY AIZUDDIN SAAD

KUALA LUMPUR: THE government’s RM6.2 billion takeover offer of four highways may seem like a good deal for Gamuda Bhd, which has significant stakes in the quartet, but is it fair to the government?

Industry experts don’t seem to think so, citing the impact on Malaysia’s debt burden and other reasons.

“First, it is like a bailout. Two of the four highways are seeing declining traffic volume,” one expert said, referring to the SMART Tunnel and Sprint highways. He declined to be named due to the high-profile nature of the proposal.

He said it would be cheaper if the government paid compensation (estimated at RM5.3 billion) to maintain current toll rates until the concessions end.

“The concessions of two other highways, Lebuhraya Damansara-Puchong (LDP) and Kesas, are expiring in nine to 11 years. It is much better to let it expire. Why the need to buy them? It will be like the case of 1Malaysia Development Bhd overpaying for old power plants, which were nearing the end of their concession, from companies owned by Genting Group and Ananda Krishnan,” he said.

Pointing out that the four were urban highways, the expert said while taxpayers’ money was being used to “bail out some companies”, rural folk were not going to benefit from it.

“It will be more prudent to use the money to promote equitable economic growth instead. If I have RM6.2 billion, is this the best use of my RM6.2 billion?” he asked.

Another expert cautioned that the RM6.2 billion valuation was sensitive to traffic growth assumptions.

Explaining, the expert said every 0.5 per cent downward change in traffic growth rate would lead to a four to five per cent decline in valuation. A worse-than-expected traffic growth in the future will render the acquisition a bad deal.

There was a precedent, he said.

The completion of Light Rail Transit 2 in 2015 and Mass Rapid Transit 1 in 2016 had led to a fall in LDP’s traffic volume. It was a contraction of 1.9 per cent in 2016 before widening to 2.9 per cent in 2017.

Completion of all new MRT and LRT lines in future would likely worsen the decline at LDP, he added.

The expert pointed out that in the fourth quarter of its financial year 2017, Gamuda had to impair SMART Tunnel’s valuation by RM98.5 million as a result of lower-than-expected revenue, and in doing so slashed traffic assumptions by 20 to 25 per cent.

Gamuda could face a similar issue with its other highways that were experiencing declining traffic, he said. But following the offer, this would no longer be a burden.

Gamuda stands to generate RM2.36 billion of the RM6.2 billion price for LDP, SMART Tunnel, Sprint and Kesas. This will be a RM124 million premium on what the expert estimated as a fair value of RM2.23 billion for Gamuda’s stakes.

Overall, Gamuda is estimated to post a net gain of RM1 billion after netting off the acquisition value of RM2.36 billion against the book value of the toll roads attributed to the company’s shareholdings.

“This is a good deal for Gamuda because not only does it get to dispose of the struggling toll roads at a slight premium, but it can also raise money to fund its Penang Transport Master Plan project,” the expert said.

As for government debt, the experts said even if the RM6.2 billion would add a meagre 40 basis points to the country’s debt to GDP ratio, which stands at slightly over 51 per cent, it was none-theless an increase.

The government’s debt stood at RM776 billion or 51.1 per cent of RM1.52 trillion nominal GDP as at March 31 this year, according to Bank Negara.

“The debt/GDP ratio will rise to 51.5 per cent, nothing catastrophic, but an increase nonetheless,” he said.

The expert also said the reported RM5.3 billion savings from compensation payments might be overstated, given rising maintenance cost that typically accounts for 10-15 per cent of toll revenue.

The estimated RM5.3 billion is required to continue paying compensation to the concession holders for maintaining toll rates at the current level.

“Looking at the concession period and assuming that all the toll roads need another RM100 million of maintenance each year, we estimate that there could at least be another RM2.5 billion in maintenance costs required. As such, the net savings for the government is actually RM2.8 billion.”