- Federal and state governments ink master agreement: The Federal and Selangor state governments have sealed the deal for the state’s water restructuring exercise, following the signing of the master agreement last Friday. The signing follows the Heads of Agreement that were inked a month ago.

- New entity, Pengurusan Air Selangor Sdn Bhd, to take over the O&M: It was revealed last Friday that a new entity, Pengurusan Air Selangor Sdn Bhd (PASSB), has been formed to take over the operations and maintenance (O&M) of water treatment plants and water supply services in the state. This is in line with previous expectations that the existing state-owned companies, i.e. Kumpulan Darul Ehsan Bhd (KDEB) and Kumpulan Perangsang Selangor Bhd (KPS) would not manage the O&M post-restructuring.

- Key points of the water restructuring exercise:-

(i) PASSB to take over three concessionaires and a service licence holder: Under the master agreement, PASSB will take over the three concessionaires – Syabas, Puncak Niaga Sdn Bhd (PNSB), and Konsortium Abass Sdn Bhd (K.Abass), which have agreed to the deal, and the service licence holder Konsortium Air Selangor Bhd.

(ii) PAAB to allocate RM1.68bil for the takeover of the three concessionaires: Pengurusan Aset Air Bhd (PAAB) will allocate RM1.68bil for the takeover of Syabas, PNSB, and K.Abass. In return, the Selangor government will transfer the water assets of the same value to PAAB on a leasehold basis for 45 years.

(iii) PAAB to take over liabilities and federal loans worth RM7.45bil: In addition, PAAB will also take over the concessionaires’ liabilities and federal loans to the state, Syabas, and PNSB, for an estimated RM7.45bil. Similarly, the state will transfer assets worth RM7.45bil to PAAB on a leasehold basis for 45 years. No breakdown of the RM7.45bil was revealed.

(iv) PAAB to lease assets to PASSB: PAAB will lease the assets to PASSB based on a rate to be discussed and finalised in a Facility Agreement and Lease Agreement. PASSB will also be given the licence under the Water Services Industry Act (WASIA) to treat and distribute water in Selangor, Putrajaya, and Kuala Lumpur.

- Share sale agreements with water operators to follow soon: According to the press statement, PASSB will proceed to sign the share sale agreements with the water operators soon.

- Federal government remains as facilitator for takeover of SPLASH: The Federal government also announced that it is committed to remain as a “facilitator” to the takeover of SPLASH by PASSB. The press statement noted that this would be done through a method that “protects the interest of all parties” to ensure a holistic management of water assets. This is contrary to previous media reports that SPLASH would be forcibly acquired through WASIA.

- Langat 2 to carry on: The master agreement also reaffirms the commitments by the two governments to ensure the completion of Langat 2. PASSB will take over the operations of the Langat 2 water treatment plant and the Pahang-Selangor water transfer project once it is completed.

- Maintain NEUTRAL: The signing of the master agreement is a bold step towards a concrete conclusion of the water saga amid the political uncertainty in Selangor. We believe that the share sale agreements will be announced in the coming 1-2 months. Note that Puncak Niaga Holdings Bhd is expected to sign a definitive agreement for the water assets sale within these two months. As for SPLASH, we remain hopeful that a fair offer will be made for a complete closure to the water saga. No changes to our call and fair value for Puncak Niaga (HOLD; FV: RM3.40/share). Maintain NEUTRAL.

Source: AmeSecurities