OSK Research views the latest offer of over RM9 billion for the acquisition of the four state water concessionaires as being less attractive.

Media reports said Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim has made a fresh offer to acquire all four concessionaires.

The concessionaires are Puncak Niaga Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS Sdn Bhd (Abass).

The proposal is to acquire 100 per cent of the shares of these companies at a price of RM64.62 for each PNSB share, RM20.78 for Syabas, RM5.95 for Splash and RM9.39 for Abass.

'Gauging from the offer price of over RM9 billion, this pricing comes close but is still lower than the previous offer by Splash to consolidate the state's water assets at RM10.75 billon.

'This makes the latest offer price less attractive,' OSK Research explained.

'Although the offer did not detail the state government's valuation approach, we reckon that it is likely to have been based on book value,' the research house elaborated further.

OSK Research said however, the offer bodes well for the sector in that a fresh offer reflects some progress, in respect of Selangor's state water asset consolidation.

'However, we are of the view, that this offer is somewhat lacking.

'For one, we are unsure as to whether the offer had addressed the question of the future of the water concessionaires involved in the takeover.

'This includes the loss of future earnings stemming from the loss of the concession and/or the appointment of a new licence holder to take over the state's water operation, post consolidation,' it added.

The loss of future earnings in particular, OSK Research said, had been raised earlier by one of the water concessionaires as a key issue that needed ironing out.

It also noted that there was no mention of the status of compensation payable by Selangor to Syabas - PNSB's 70 per cent-owned water distribution arm - arising from the delay in implementing the 37 per cent water tariff hike scheduled for Jan 1, 2009.

'Although the offer is intended for the water concessionaires, we are mindful that the golden share held by the Federal Government in Syabas means, that its approval on the matter is required,' OSK Research said.

Despite claims that the offer has been made, it said there were no official announcements on Bursa Malaysia yet.

'Nonetheless, should an offer be based on the above-mentioned points, we reckon that water concessionaires are likely to reject it on the grounds that the crucial issues are not being addressed,' it highlighted.

OSK Research is maintaining its 'overweight' recommendation on the water sector as well as PNSB's target price at RM3.85, for exposure to the Selangor state water asset consolidation.
AmResearch in its report on the water sector said the issue of control over water distribution rights and#8211; now under Syabas and#8211; remains a niggling problem.

'The state government has made it abundantly clear that it intends to lead consolidation in a holistic manner, that is, treatment and distribution under one roof as per the new water framework.

'After all, the state government still holds considerable bargaining clout, through the ownership of around 80 per cent of the state's water assets, including raw water,' it added.

Another issue pertains to the still lingering issue over Syabas'' proposed tariff hike, according to AmResearch.

AmResearch is maintaining its 'neutral' weighting on the water sector. -- Bernama