- The heads of agreement (HoA) outlining the water restructuring process in Selangor is expected to be signed in the next two weeks, reported The Edge Financial Daily.

- The report quoted Selangor chief minister Tan Sri Abdul Khalid Ibrahim as saying that the HoA has been circulated to all parties in order to reach a consensus on the timing of the signing.

- The HoA would entail the acquisition of the shares in Syabas by Kumpulan Darul Ehsan Bhd (KDEB), the investment arm of Selangor, said Khalid.

- The HoA will outline the main issues relevant to a preliminary agreement. The deal will involve a loan and bond transfer exchange for a long-term lease to KDEB, which is being tasked to take over all the assets.

- He does not foresee any backlash in completing the water restructuring exercise given that Puncak Niaga Holdings Bhd’s (PNHB) executive chairman and major shareholder Tan Sri Rozali Ismail has agreed to the exercise.

- PNHB is expected conduct an EGM in the 3Q to receive shareholders’ approval for the takeover.

- Recall that PNHB had accepted in principle for KDEB’s proposed acquisition of its 100% stake in Puncak Niaga Sdn Bhd and 70% stake in SYABAS last month for RM11.55bil cash.

- SPLASH remains the only one left in the state to agree to the offer in the restructuring exercise. Gamuda Bhd, which owns a 40% stake in SPLASH, had noted that the RM250.6mil offer was less than 10% of SPLASH’s NAV of RM2.54bil. As such, this would result in a divestment loss of RM920mil for Gamuda.

- However, the Selangor government has iterated that it is unlikely to revise its offer to take over SPLASH as it would be unfair to the other concessionaires that had accepted the offer.

- Recall that the state had previously said the privatisations of the other concessionaires will still go through and do not depend on SPLASH’s acceptance. We opine that SPLASH’s acceptance is still needed for an ultimate closure for the water saga.

- A fair valuation for SPLASH is still key to push the water impasse to a final resolution. In May, there have been indications by the state and Federal governments to re-examine bulk water supply payment to SPLASH. The continuation of the O&M licence is also a key point in negotiations. Maintain NEUTRAL. 

Source: AmeSecurities