PLUS EXPRESSWAY : Scratching the tip of a block of tar

ARCHIVES 2011

By admin-s On Jan 24, 2011

By Lee Wee Tak

The biggest deal for the year so far is of course the UEM–EPF acquisition of PLUS. Without DAP Economic Bureau’s alternative budget for 2010 proposing a RM15 billion bid to nationalise PLUS, I doubt if this UEM–EPF initiative would ever be mooted by the BN administration.

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http://biz.thestar.com.my/news/story.asp?file=/2011/1/18/business/7818903&sec=business

Tuesday January 18, 2011
PLUS Expressways says UEM–EPF offer ‘confirmed’

PETALING JAYA: PLUS Expressways Bhd‘s board of directors, save for the interested directors, has deemed the UEM Group Bhd-Employees Provident Fund’s (EPF) RM23bil takeover offer as a “confirmed offer.”

It told Bursa Malaysia yesterday that the board had decided to proceed with the adjourned EGM for its non-interested shareholders to consider the disposal of its entire business and undertaking to UEM–EPF, and the proposed distribution of the cash proceeds to all entitled shareholders via a proposed special dividend and selective capital repayment.
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So under BN, the valuation is RM8 billion more than DAP’s economic bureau but that is not what I am examining here.

I took a look at the 2009 audited accounts and try to appreciate the magnitude of the issue at hand.

I extracted the numbers from the audited 2009 accounts.

What strike me is that the compensation for 2009 and 2008 represent almost 70% of the total profit. The “compensation” is almost equal to the “direct operating cost” i.e. PLUS essentially is running a service with hardly any capital contribution of its own. Without compensation, the profits of RM1.2 billion for both years are already an impressive RM300 million.

The word compensation is dubious, as we only compensate when there is a loss, not profit.

I already hearing some one saying that Plus needs the huge profits to generate enough cash to pay for the capital infrastructure, right?

According to the balance sheet, resource available comprising compensation receivable plus all the cash in banks as at 31 December 2009 was around RM5.5 billion; about half of all liabilities due to government and financial institutions. Those debts are not immediately payable but many years later.

Note 24 of the accounts provide a breakdown as followings:
Due within 1 year : RM582 million
Due between 1 and 2 years : RM943 million
Due between 2 and 5 years : RM2.7 billion
After 5 years : RM6.8 billion

It seems that cash in the bank alone, RM2.9 billion (the 2 numbers shaded in yellow) was more than enough to pay 2 years’ worth of borrowings already.
So just want do PLUS do with the RM800 million compensation receivable for 2009?

Why, pay dividend of RM800 million, of course!