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Saturday, June 13, 2009

Water: Juiced-up offers?

Yesterday, Kumpulan Perangsang Selangor’s (KPS) (KUPS MK, Not Rated) share
price spiked 36 sen or 20%, possibly on speculation of headway being made on the
consolidation/acquisition plans for water assets in Selangor. We followed up with
industry checks and were positively surprised to learn that the Selangor state
government may make fresh takeover offers to PNSB, Syabas, ABBAS and SPLASH
soon. The new offers are likely to be attractive.
We gather that the Jun 09 deadline for the state government to make alternative offers
to the four water concessionaires in Selangor is unchanged. Several meetings have
been held between the federal and state governments via a joint committee over the
past 2-3 weeks. The federal government is represented by the Ministry of Finance
officers, EPU and PAAB, among others. The state government is represented by the
state secretary and KDEB, among others.
An alternative valuation parameter by the state government has been agreed on and a
takeover offer is likely to be made within the next 1-2 weeks. The target acquirees are
unchanged – PNSB, Syabas, Splash and ABBAS.
Puncak is likely to be offered RM3.50-4.00/share, based on the sum of parts of PNSB
and Syabas. The price tags for Splash and ABBAS are likely to be much better than
the initial offers and more acceptable. The breakdown of acquisition values is not
available but it will apparently be roughly 1x BV + returns/premium. Indications are
that the derived value will not be too far off from the DCF method.
Borrowing/bonds held by the four concessionaires will be addressed. PAAB is likely to
take over the bonds while the state government takes control of the concessions. The
deal could shape up to a back-to-back deal, which could work

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