Puncak seeks clarification on Selangor’s offer

PETALING JAYA: The sale of the water assets of Puncak Niaga Holdings Bhd's wholly-owned subsidiary, Puncak Niaga Sdn Bhd (PNSB), and its 70% subsidiary, Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), to the Selangor state government hinges on several factors, especially on the renewal of the operations and maintenance (O&M) licence.

Additionally, it will also depend on the treatment of the preference shares that will impact the offer price for the water assets.

The latest offer by Selangor, which expires at the end of this month, has valued PNSB and Syabas at RM64.62 and RM20.78 per share respectively.

According to an analyst at K&N Kenanga, the paid-up capital for ordinary shares in PNSB and Syabas was 10 million and 65 million respectively.

“By taking this to Puncak valuation, it can be translated to RM3.87 per share,” he said in his report.

At this juncture, he said, the research house believed the offer price for Puncak was “somewhat” fair, as it was close to its target price of RM3.74 (20% discount to full discounted cash flow valuation of RM4.86).

“Nonetheless, the attractiveness of the offer lies on the O&M licence entitlement, which we think could be the setback for Puncak to agree with the recent offer.

“We opine that Puncak may seek a higher price, should the offer excludes Puncak's entitlement for O&M licence (post-consolidation),” he noted.

Puncak had said it was seeking further clarification from the state government in relation to the last offer.

It was reported that after a search with the Companies Commission of Malaysia, the total issued share capital of PNSB and Syabas was 14.8 million and 71.55 million respectively, inclusive of preference shares.

“The implied value for Puncak is at RM4.86,” the analyst said, assuming conversion of outstanding preference shares to ordinary shares.

He said Puncak could issue shares with the redemption or conversion of preference shares.

In the first scenario, Puncak shares are estimated at RM3.87 per share.

“We assume the outstanding preference shares will be redeemed by the acquirer (Selangor) while assuming preference shares as debt-like securities. We see the acquirer opting for this scenario as it keeps the offer price low, hence satisfying the current shareholders,” the analyst said.

In the second scenario, Puncak would probably be valued at RM4.86 per share.

“We assume the outstanding preference shareholders will convert their rights to ordinary shares; hence, the offer price for Puncak equity will be higher at RM2.4bil, compared with the first scenario at RM1.9bil,” the analyst said, adding that this second scenario might not be the best for Selangor, but was a good opportunity for preference shareholders to maximise their returns.

While there was potential upside to Puncak's share price, the current deal with the state government remained unclear, said an analyst with ECM Libra Capital.
There are several outstanding issues that can affect the sale of the water assets, hence impacting its share price.

Another local analyst said the deal remained “murky” as full details of the offer by Selangor were unknown. “But we remain optimistic the deal will be amicably resolved between Selangor and the parties concerned before year-end.”

However, before the deal is done, Puncak, however, may want to have the O&M licence to ensure continuity of its business plan.

“If Puncak does not get the O&M licence renewed, then it will be looking for a better offer price to exit the water business totally,” he said.

He said the option for Selangor to buy over all the water assets from Puncak even at a “premium” was still better than to start its own water infrastructure, which would take time and possibly be more costly.