Malaysia adds debt to cut tolls
Bonds MoF plans to issue M$6.2bn bond via special vehicle to acquire concessionsBY KIT YIN BOEYMalaysia’s offer to acquire
the holders of four highway
concessions may help the
government meet its election
pledge to remove toll charges,
but it will add to an already
high federal debt burden.
The Ministry of Finance in
late June made a conditional
offer to acquire four highway
concessionaires for M$6.2bn
(US$1.52bn). The highways –
Lebuhraya Damansara Puchong
(LDP), Sistem Penyuraian Trafik
KL Barat (Sprint), Lebuhraya
Shah Alam (Kesas) and Smart
Tunnel – are respectively
owned by LINGKARAN TRANS
KOTA (Litrak), SISTEM PENYURAIAN
TRAFIK KL BARAT, KESAS and PROJEK
SMART HOLDINGS. The respective
concessions are due to expire
between nine years (Kesas) and
23 years (Smart).
The plan still requires the
approval of the shareholders
and creditors of the four
concessionnaires, as well as the
full cabinet.
The proposed acquisitions
will be funded by a M$6.2bn
bond to be issued by a special
purpose vehicle set up by
the MoF. The purchase pricewill cover the highways’
outstanding debt.
The ministry has not
yet clarified whether the
government will provide an
explicit guarantee for the
proposed sukuk, which it said
would be repaid from new
congestion charges – fees
that would be lower than the
existing tolls.
The deal, however,
is expected to leave the
government with at least
contingent liabilities, since
the new owner of the highway
concessions will be on the hook
for any shortfall.
The four highways,
which account for 48% of all
toll revenues collected on
Malaysia’s urban toll roads,
have a combined M$2.3bn in
outstanding Islamic bonds with
maturities ranging from 2019-- Projek Smart has the
longest-dated sukuk of M$50m
maturing in September 2032.
Hong Leong Investment Bank is
advising Litrak and Malaysian
construction company GAMUDA,
which has equity in all four
projects, and the bank will
likely lead efforts to gain
consent from their respective
bondholders to the sale of
assets and early redemptions,
among other things.GOVERNMENT TEMPLATE
The government is expected
to use the plan as a template
to acquire more of the
country’s 21 toll roads, and
the scheme is not expected to
disrupt Malaysia’s deep bond
market, which has funded up
to M$471bn of infrastructure
projects since a privatisation
programme began in the 1990s.
“The preservation of investor
confidence and adherence to the
rule of law – by safeguarding the
sanctity of contracts – is critical
to the continued long-term
funding of future infrastructure
projects by the private sector,”
said Davinder Kaur Gill, RAM’S
co-head of infrastructure and
utilities ratings.
Gamuda’s board swiftly
announced its acceptance
of the government offer.
Subsequently, the sponsors and
concessionaires of LDP, Sprint
and Kesas also announced
their approval. Projek Smart, a
joint venture between Gamuda
and MMC, has not made any
announcement on the offer yet.
Analysts said the debt-
funded acquisitions could bean acceptable risk given that
federal debt fell to M$686bn
as of April this year from the
M$1trn inherited by the Pakatan
Harapan government in May
last year. The drop has been
attributed to the cancellation
of some projects, the reduced
costs of others and a rise in
GDP. Overall debt and liabilities
accounted for 75.4% of GDP in
2018, down from 79.3% in 2017.
The MoF said in a statement
that the removal of toll charges
would save public users about
M$180m annually, while the
government would no longer
need to pay compensation
amounting to M$5.3bn to the
concessionaires for the freeze in
toll rates imposed at the start of
the year.
Public support may be
undercut somewhat by the
congestion fees that are
planned to come into effect in
January 2020, though the fees,
which will vary based on peak,
shoulder and off-peak hours,
will be substantially lower than
the toll charges. The fees will
also be sufficient to cover the
operation and maintenance
costs of the highways.
“In other words, the
acquisition cost will be self-
financing through the collection
of congestion charges and will
not require any government
expenditure,” said Finance
Minister Lim Guan Eng. Trade war hits BRI financings
Loans Chinese lenders turn cautious on landmark infrastructure initiativeBY APPLE LIThe trade war between the US
and China is forcing lenders
to reassess, or even reject,
financings linked to China’s
massive US$1trn Belt and
Road Initiative that includes
transportation, energy and
infrastructure projects in more
than 70 countries.
While Chinese lenders
remain the biggest backers of
President Xi Jinping’s “project
of the century”, some are
turning increasingly cautiouson BRI deals that could be
exposed to US tariffs or other
measures.
Bankers are particularly
concerned of a deterioration
of credit quality for Chinese
companies that sponsor BRI
projects or play a pivotal role in
the supply chain.
“We’re considering rejecting
funding for some Belt and Road
projects after analysing the
potential impact the trade war
might have on the sponsor,”
a senior Beijing-based banker
said.Despite the uncertainty,
lenders still see opportunities
in certain industries or
countries, including Vietnam,
Taiwan, Bangladesh and South
Korea.
“We remain supportive of
projects which are not exposed
to these risks, especially in
some countries that could even
benefit from the trade war, in
particular, Vietnam, and other
South-East Asian countries,” the
Beijing-based banker said.
South-East Asian countries
are likely to be among therecipients of trade and
investment opportunities as the
US and China divert imports
away from each other to other
nations, according to a June 5
study by Japanese investment
bank Nomura.
Vietnam has so far been the
biggest winner, with increased
exports to both China and the
US helping boost GDP growth
to 7.9%. Taiwan, Chile, Malaysia
and Argentina also stand out
as beneficiaries, according to
Nomura.
The most recent financingNews