Puncak Niaga/KPS - five possibilities

The intervention of the federal government in Selangor’s water restructuring exercise is seen as a positive light.

The notification implies there will be no changes to Selangor government rm9.7 billion takeover offer.

Following the news, sources clarified that the federal government may consider taking over the administration of water operations and not the water assets a widely interpreted.

There are five positives in the latest scenario …

1. The Federal government’s intervention will jump start the restrusturing;
2. It leaves more room for Puncak and Gamuda to re negotiate the exit price for its water assets.
3. Puncak (owner of PNSB and SYABAS) may be able to get its proposed valuation top up/compensation;
4. Gamuda could get a valuation upside for 40% owned SPLASH;
5. The construction of the Langat 2 water treatment plant and major large diameter pipe works can begin.

The direct beneficiaries from a negotiation of the takeover valuations are Puncak Niaga and Gamuda.

The larger diameter pipe laying works will spill over to pipe players such as Engtex.

Nonetheless, the Selangor state government’s move to invoke Section 114 of Water Services Industrial Act to get the federal government in could deal a big blow to the water players.

The main contentions of the Selangor offer included the absence of payment of surplus of assets and the 12% return of equity evaluation of the equity portion. With the invocation, it is uncertain if the terms of the offer still stand.

While the invocation might expedite the restructuring exercise, it is unlikely that the players will receive an offer that meets their expectations.