- The Federal government intends to kick-start talks with the water concessions with the plan of reaching a conclusion to the water impasse soon, Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said in reports today.

- Ongkili said the Fed government was still open to discussions to reach a “willing buyer, willing seller” basis to acquire the water assets, despite signalling its intention to invoke Section 114 of the Water Services Industry Act (WASIA).

- The minister is hopeful of reaching “a finalisation in the next few weeks” and to give space for a mutual agreement.

- We view the news positively, as the water concessionaires may be able to negotiate for a better deal with the Federal government, compared to the RM9.65bil offer made by the state government.

- We believe that the dynamics of the negotiation process may change as the concessionaires will be negotiating directly with the Federal government this time around.

- We also take comfort that the minister views the invocation of Section 114 of WASIA as last resort. In our talks with players, we understand the invocation (a precedent move) does not entail a forced takeover of the water assets, but only the control of the day-to-day business.

- Meanwhile, Selangor chief minister Tan Sri Khalid Ibrahim was reported as saying that the state government is prepared to go for international arbitration process if the offer price is deemed too low by the concessionaires. However, we do not foresee a need for this if the concessionaires are able to strike a deal with the Federal government.

- As for the state government’s intention to terminate the raw water licences, there has been no formal announcements by the concessionaires thus far.

- The latest development reaffirmed our view that an offer by the Fed government should come in the 1H, as the restructuring exercise is key to ensure sustainable water supply to the Klang Valley.

- We maintain NEUTRAL on the water sector as we await a new offer from the Fed government. We have a HOLD for Puncak Niaga with a fair value of RM3.40/share, which is based on the last offer made in Nov. We also have an implied value of RM1.42/share for KPS (non-rated). 

Source: AmeSecurities