In the deal that EPF has signed with Ekovest, as mentioned, there is 1 most important clause - which is the guarantee of 10% IRR by Ekovest to EPF over the period of 5 + 2 years.

What is this IRR for those non-financial people. Basically, what EPF and Ekovest have agreed is a valuation of RM2.825 billion on the DUKE Expressway (DUKE 1 & 2). That valuation has a condition i.e. it must provide a IRR of at least 10% to EPF - a good deal to EPF as it gets guaranteed 10%.

What both parties do is that they most probably use a Discounted cashflow (DCF) method and work backwards whether the revenue, cashflow and profits achieve the intended minimum 10%.

As mentioned, there is a target to get into an exercise be it IPO or trade sale etc for the asset. If Ekovest does not achieve that, it will have to payback to EPF at a certain guaranteed arrangement.

Based on the below table, this is the assumed valuation of the highway in the event there is no dividend paid. It will on compounded basis grow 10% every year. I have provided a row on what would the value be for EPF and Ekovest as well since it still owns 60% of the highway.

Please click to enlarge

As an example, by 2020 the value of the highway if it achieves the 10% IRR to Ekovest would be RM2.481 billion. (This is the reason why I am so positive on Ekovest as this is one of its few assets)

In the event, it does not achieve the intended 10% IRR, it would be however detrimental to Ekovest - which is also why in several news report they have mentioned of their intention to quickly do an IPO probably by 2018.

I however do not think it is that bad as I trust the management to have that confidence that it will achieve 10%. In fact, if I read between the lines, EPF sees it will achieve more than 10%.

By the way, as I know despite I write so much I have not put in my money under this particular personal fund for Ekovest, I have decided to do what is obvious by buying 5000 units of Ekovest-WB (this is how confident I am) as it still has about 2.5 years to go before expiry. I took the opportunity of yesterday's slump to do that.

Purchase of Ekovest-WB at RM1.30

The purchase is partly helped by my sale of Insas-PA as I think the remaining more than 5% of return could be better now.

Sale of Insas-PA