The SPLASH issue explained
The historical dividends of RM725.4mil paid until the end of 2012 was not only sufficient for Splash shareholders to recover their initial RM400mil, but also left them with a return of RM325.4mil, almost doubling their investment within a period of 12 years.
THE CORRIDORS OF POWER
Raja Petra Kamarudin
RPK, Let us not get too far ahead with the spin. If you allow me the right of reply and let me put the record straight. (READ HERE: Selangor’s Watergate about to explode)
As a shareholder of Splash I was appalled to receive from KDEB an offer representing only 10% of the audited nav of the Company. As the MB Khalid Ibrahim was not prepared to see me, I approached Anwar Ibrahim, who after all is Economic Advisor to Selangor to set up a meeting for me so that I could hear some intelligent explanation why SPLASH was offered such a derisory offer. Khalid did not like that, but if he had bothered to meet me or answered the many letters I wrote, Anwar Ibrahim need not have to be involved. Flattering as it may be, saying that I may have the power and influence to unseat MBs is one spin too far.
SPLASH has an audited net asset value of RM2.5 billion plus another 16 years of unexpired concession life. That unexpired term in net present value terms is worth another RM1.4 billion. Through KDEB, Khalid offered to buy SPLASH for RM250 million. That’s a ninety per cent discount on NAV, never mind against full concession valuation. SPLASH happens to be a well-run, efficient and profitable company, not a consignment of rotting fish to deserve such derisory offer.
Contrast that with the State’s offer for SYABAS, a company with an audited negative (note: NEGATIVE) net worth of RM2.1 billion. That is after accruing tariff increases of approximately RM3.5 billion, an increase that was rejected by the State, a grand gesture that made Khalid Ibrahim a Robin Hood figure and a cult hero. Adjusting down the accrued revenue from a disputed tariff increase, SYABAS’ negative shareholder value advances to RM5.6 billion. Khalid Ibrahim is now buying that wreckage at RM441 million. That is generously over-valuing the acquisition by RM6 billion. A spectacular bailout in the name of the rakyat!
I could go on about the valuations accorded to Puncak Niaga and ABBASS, the other two concessionaires being bought out by the State, and demonstrate how badly treated SPLASH has been. But let’s not bore your readers. However, my personal advice to you is to check some of the facts and numbers. After all, your brother sits on the Board of KDEB, and should know the affairs of SPLASH as well as SYABAS quite well. Assuming of course, he can be as committed to truth and fairness as you.
Wan Azmi Wan Hamzah
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Selangor: Offer for Splash stands, revision would be unfair to players who have accepted offer
(The Star, 8 July 2014) – The Selangor government is unlikely to revise its offer to take over Syarikat Pengeluar Air Selangor Sdn Bhd (Splash) on the premise that it would be unfair to the other concessionaires who had already accepted the state’s offer.
According to Azrul Azwar, a special functions officer for Selangor Mentri Besar Tan Sri Khalid Ibrahim, the offer of a non-compounded interest of 12% per annum to Splash was “decent” enough.
“In all likelihood, the state is unable to agree to Splash’s preferred valuation methodology, as it would be unfair to the other water concession companies, all of which have accepted offers that are based on a return on equity (ROE) of 12% per year.”
“By any measure, this offer would provide a decent return, and compared with the prevailing fixed deposit rates of 3% per year, a return of 12% would appear to be very lucrative indeed,” he said in a report explaining the valuation of the latest water assets takeover by the Selangor state government in February.
Khalid and Energy, Green Technology and Water Minister Datuk Seri Dr Maximus J Ongkili in a joint-statement in May had agreed to re-examine the payment for bulk water supply for Splash in arriving at a win-win solution.
Splash, which is 30%-owned by The Sweet Water Alliance Sdn Bhd (TSWA) and 30% by Kumpulan Darul Ehsan Bhd (KDEB), is the only remaining Selangor water concessionaire that has not accepted the offer by the state government. Gamuda Bhd, which owns the remaining 40% stake in Splash, claimed the net offer of RM250.6mil for Splash when compared with the net asset value (NAV) of Splash amounting to RM2.54bil, would result in a staggering divestment loss of RM920mil to Gamuda. In addition, the net offer price was below 10% of Splash’s NAV.
The offer to Splash also incorporates water-related liabilities under Splash, which had amounted to a total of RM1.58bil as at Dec 31, 2012.
In the report, Azrul explained why the state thought the offer was fair. He said:
● The equity portion in the offer from KDEB is valued at RM250.6mil by applying a non-compounding 12% ROE invested up to Dec 31, 2012 and after the deduction of RM725.4mil in historical dividend payouts;
● Splash shareholders have invested a total of RM400mil in equity capital via RM50mil ordinary shares and RM350mil in redeemable preference shares;
● Applying a non-compounded return of 12% per annum on the RM400mil invested by Splash shareholders for the 12 years since the start of the concession in 2000 would result in a total return of RM576mil, which means a total payback of RM976mil, after including the initial investment RM400mil; and
● The historical dividends of RM725.4mil paid until the end of 2012 was not only sufficient for Splash shareholders to recover their initial RM400mil, but also left them with a return of RM325.4mil, almost doubling their investment within a period of 12 years.
Azrul also said that Splash had been enjoying lucrative returns and synergistic benefits from the concession. For the financial year ended March 31, 2013, Splash posted a profit of RM382mil, translating into a pre-tax profit margin of 93.47%.
“Apart from the direct investment returns enjoyed by the shareholders of Splash, there have been and continue to be other indirect returns derived from the synergistic benefits of the shareholders’ related group of companies and associate companies. For example, as part of the privatisation, Splash had signed a contract with Gamuda Water Sdn Bhd on Jan 24, 2000 for the operation and maintenance (O&M) of Sungai Selangor Phase 3. Gamuda Water is 80%-owned by Gamuda and 20%-owned by a party reputedly related to TSWA.
