Un-tolled joy or un-told joy?

The Star with its 29th January 2010 headline screamed "un-tolled" joy.

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http://www.starproperty.my/PropertyScene/PropertyNews/9896/0/0

Toll abolished on one stretch, no rates hike on two highways


PUTRAJAYA: Toll for the Salak to Taman Connaught stretch of the East-West Link Expressway is set to be abolished by May, Datuk Seri Najib Tun Razak announced.

The Prime Minister also announced that the toll rates for the Kuala Lumpur-Karak Expressway and East Coast Expressway Phase One would not be increased for the next five years.

He said the decisions were made following a review of transportation costs, including restructuring the toll charges and to ease the people’s burden.

He also added that no compensation would be paid to the concessionaires of the three highways.

“In line with the 1Malaysia spirit, People First, Performance Now, I have asked toll concessionaires to carry out a review of the respective toll charges to help the Government prosper the country and lessen the burden of the people.

“Taking up the Government’s call, two corporate figures who are also major shareholders of a toll concessionaire, came forward with a toll restructuring proposal through the acquisition of assets, which will benefit the people,” he told a press conference at his office here yesterday.

Also present was Works Minister Datuk Shaziman Abu Mansor

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An early nice Chinese New Year surprise for the toll hating Chinese community before Tenang by-election?

MTD Capital Berhad operates the above 2 tolled highway until 2032 with another one (not acquired by the directors in this exercise) until 2018.

Below is a screen shot of the letter of offer, announced by MTD Capital Berhad in Corporate Announcement section of the Bursa's website as required by the listing requirements.




According the the offer above, the 2 directors via a Special Purpose Vehicle will pay MTD RM3.525 billion in cash to buy the 2 concessions. I get a bit worried whenever I see the term SPV and any government linked initiative in the same article. Not sure why.

The question is, how is this SPV (i.e. entirely new company, starting from zero) going to raise the RM3.525 billion? Is it from bank loan guaranteed by government? Government loan? EPF investment? Khazanah contribution? Either way, the rakyat is going to finance this either via tax money or hard earned deposits with commercial banks. It looks unlikely that some rich entrepreneur came up with the cash elsewhere.

The challenge nowadays is to achieve more with less resource; not achieve less with more resource committed. So is this a good deal for the people as the Prime Minister indicated?

This is tricky as I do not have all the relevant details. According to MTD Capital Berhad's 2009 audited accounts, 3 tolls gave them a profit before finance charges and tax of RM143.8 million



Now this RM143.8 million is from 3 toll highways but in the absence of the breakdown per highway, I took the offer purchase price of RM3.525 billion for 2 highway toll concessions and divided by total profit earned by 3 concessions.

Lo and behold, it is about 24 1/2 years, calculating from 2011 onwards, it covers profits up to 2035 while the 2 concessions will end July and December 2032. 3 years extra.

Those who understand financial terminology knows what I am saying - I do not have MTD's WACC nor cash flow projection to do a proper discounting.

From tax payers' point of view, why can't Najib administration negotiate better? By paying off immediately, the termination of business risk and immediate cash inflow would worth a huge discount from MTD. If Rakyat Diutamakan surely the most powerful prime minister can play a bit of hard ball and carrot & stick to part with lesser money? He has proven to be a smooth political plotter elsewhere.

Although the article mentioned no increase for 5 years, there is no further details about whether the length of concession will remain the same or otherwise, nor what will happen from the 6th year onwards.

Furthermore, who are the shareholders of the SPV? To whom the profits arising from future toll be going to? Does the SPV have concrete cost management and reduction programme? Is there going to be open tender by the SPV to obtain the best offers from vying contractors to maintain the highway?

The sentence "no compensation for the 3 highways" makes me wonder. The profit above would have included the compensation for 2009. If the purchase consideration exceeded the profits then the compensation would have been included in the RM3.525 billion anyway.

I won't be jumping with un-tolled joy until the untold parts are clear to me.