The Selangor state government is unlikely to grant the federal government a  third  extension  to  the  master  agreement  signed  on  12  Sep  last  year  to restructure the state’s water supply industry. The agreement lapses today, said sources. According to the source, the federal government has asked for another one-month extension to the master agreement till 31 March this year. But the Selangor government had disagreed to extend the deadline to accommodate some changes to the master agreement, which would allow the federal government to acquire all land utilised for water assets (such as pipes, plants and reservoirs) for free, said the source. It is understood  that Selangor Menteri Besar Mohamed Azmin Ali’s office is expected to issue a press statement on the matter today. (Source: Financial Daily)

Comments:  The  conflict  between  the  federal  and  state  governments  is centred  on  a  dispute  which  materialised  after  the  federal  government claimed  the  Semenyih  and  Bukit  Nanas  reservoirs,  together  with  all  the water  pipelines  in  Selangor,  are  under  Putrajaya’s  management  and ownership, while the Selangor ruling-party, Pakatan, said the assets belong to  the  Selangor  government.  We  view  this  negatively  if  the  master agreement between the federal and state government lapses, as we believe Puncak would need to sign a new agreement for the disposal of its water assets and thus delay the receipt of the sale proceeds. But we believe the valuation of its water assets (RM2.90/share) would likely remain unchanged since  the  legal  dispute  is  between  the  federal  and  state  government.  We maintain our Neutral rating on Puncak with unchanged TP of RM2.90.

Source: Affin Hwang Capital Research - 9 Mar 2015