Bursa Announcements News

The terms used herein shall, unless the context otherwise stated, bear the same meaning as those defined in the announcement dated 27 February 2014 in relation to the above.

We refer to the offer dated 26 February 2014 from KDEB to the shareholders of SPLASH offering to purchase 100% of the equity of SPLASH for the sum of RM250.6 million.

Responding to the offer, the Company has on 10 March 2014 informed KDEB that while it appreciates the Menteri Besar’s best efforts to consolidate the Selangor water industry, it is constrained from accepting the said offer due to the adverse consequences on the Company.

The net offer of RM250.6 million for SPLASH when compared to the net asset value (“NAV”) of SPLASH amounting to RM2.54 billion (“bn”) as at 31 December 2013 will result in a huge divestment loss of RM920 million to the Company. The offer of RM250.6 million is below 10% of SPLASH’s NAV. The offer is therefore not reasonable for acceptance by the Company.

2.     Gamuda had accepted earlier offers by KDEB

 The Company informed KDEB that it is however, amenable to accepting an offer by KDEB to acquire the equity of SPLASH upon mutually agreed terms on a ‘willing buyer-willing seller’ basis, based on the following conditions which were already included in KDEB’s earlier offers and accepted by the Company:  

i)  Payment of SPLASH’s NAV (as agreed by KDEB in its letter of offer dated 20 February 2013 page 6 item 2 (vi) and the State’s offer dated 15 July 2009 page 2 item 6).

ii) The retention of the operations and maintenance operators of SPLASH (Gamuda Water Sdn Bhd and Sungei Harmoni Sdn Bhd) at existing terms (as agreed by the State in  its letter of offer dated 15 July 2009 page 2 item 4 ).

3.     Current State’s Offer Is Vastly Lower From Earlier Offers Which We Have Accepted

 The consideration for the two previous offers of July 2009 and February 2013 were close to the NAV of SPLASH and the Company had accepted those offers. Anything less than that will result in losses on divestment to Gamuda. The Company explained to KDEB that its Board of Directors could not justify to its shareholders which include governmental institutions holding public monies such as the Employees Provident Fund Board (“EPF”), Kumpulan Wang Persaraan (DiPerbadankan) (“KWAP”), Skim Amanah Saham Bumiputera and other pension funds, foreign investors and the general public  the acceptance of such a huge loss.

4.     Forgoing The Entire Future Earnings of SPLASH

 The Company had accepted the previous offers despite forgoing the entire future earnings of the next 16 years in order to help bring the current water impasse to a close.

The Company in its reply to KDEB highlighted to KDEB that in no other industry, or preceding cases in Malaysian history, has any concessionaire been willing to give up 16 years of remaining life of concession profits without fair compensation.

The Company also brought to KDEB’s attention that in the past experience of Malaysian toll roads and Independent Power Producers (“IPPs”), these concessions have been taken over or compensated in accordance to their Discounted Cash Flow (“DCF”) valuations.

Gamuda informed KDEB that what is currently offered is a 12% return on equity. By this, concession companies which have a shorter remaining life are valued higher. On the other hand, companies with a longer remaining years are valued lower such as SPLASH with 16 years remaining, is offered only RM0.251 bn.

A fixed return on equity as imposed by KDEB is not an appropriate formula to value concessions. By a fixed return, companies which have made huge losses, incurred large debts, or has been grossly inefficient, would still benefit significantly from the fixed return of 12% on equity, irrespective of performance. Conversely, companies which are profitable and have been prudent and efficient are punished.

6.   Amenable to Arbitration

The current offer for arbitration by KDEB is confined to arbitrating only on the quantum of the equity return based on the formula imposed by KDEB which the Company has consistently rejected. The Company informed KDEB that it will readily submit to arbitration if it were used as a device to genuinely resolve the valuation dispute. As such, the valuation should be left to the Arbitration Panel to decide based on internationally accepted methodologies.

This announcement is dated 10 March 2014.