https://www.amanatlr.com/about-us.html Amanat Lebuhraya Rakyat Berhad ("ALR") is a private company established under the Companies Act 2016, in late 2021, with the sole purpose of undertaking the business of a holding company of highway concessions. ALR is in the process of acquiring four highway concession companies, Shah Alam Expressway (KESAS), Western Kuala Lumpur Dispersal Link (SPRINT Highway), Lebuhraya Damansara-Puchong (LDP) and Stormwater Management and Road Tunnel (SMART), by raising funds through Sustainability Sukuk or Sustainable Responsible Investment Sukuk.
ALR and its subsidiaries will be overseen by a board of directors ("BoD") and the four concession companies will continue to operate and perform maintenance of the highways with the existing management team and staff intact, upon the completion of our proposed acquisition.
ALR's BoD have full fiduciary duty to the company's capital providers. ALR's BoD are also its shareholders and ALR's shareholders are its BoD.
ALR's shareholders are "not-for-profit" motivated and thus cannot extract any dividends nor distribution whatsoever, from ALR.
Therefore, all and any profits generated through the operation of these four highway concessions must be channelled purely for the servicing and early redemption of ALR's financial debts, which is solely to the benefit of the motoring rakyat since ALR is obligated to return the concessions to the Government as soon as its financial debts have been fully redeemed.
Under our ALR structure, the more traffic there is on our highways, the shorter the concession will be.
Litrak has to seek approval from the shareholders for the disposal of LDP (subsidiary) and Sprint (associate). Without capital repayment exercise , shareholders wouldn’t approve it la.
they need to further clarify the whole thing. Full press conference with QnA. in the mean time there's probably money making opportunities until full clarity is received.
CCB acquisition history. Offer price RM2.4 on March 17. March 18 close at 2.18. March 19 closed at 2.41. June 23 became 3.14. If same thing happen looks like 5.08 should be the base price. Thus, no rush to sell tomorrow in my view.
how did we arrive at base price of RM5.08 , when the offer value from ALR is 2.12 billion which is equivalent of RM4. 5.08 does it include the cash of RM1 as well ?
Recap previous offer - cash balance retained by litrak/sprint meant for the benefit of Litrak Holding To-day offer - i wonder whether so called cash/cash equiv/cash compensation due already considered in the Purchase considerations of 2,119 M and 1,808 M
The final Equity Value after taking account Enterprise Value is 2,698m. NOSH =533M. Thus price per share should be 2698M/533M = RM5.06/share.....right?
Based on Litrak's announcement, the anticipated equity value is RM2,698m, not far from RM2.75b offered by the PH government in 2019.
Looking back to my conversation with @EVEBITDA in late Oct last year, he was spot on in highlighting that the value of a revised deal would still be near to the 2019 offer price despite reduced concession period.
Yes, without this offer we can expect increased dividends over the next 10 years, or a one time special dividend as Litrak issues a new bond as EVEBITDA has suggested then. However, if you discount those future expected cash flows based on a discount rate of 7%, the total value today is about RM5 too, quite similar to current offer.
So shareholders can accept the deal, get the money now (assume all distributed), and find and invest in another stable investment that yields at least 7%.
thanks for the explanation @observatory. for me at least my cost of capital is only yearly inflation as I've no borrowings or margin. not many other 7% dividend counters other than maybank, utdplt, and a couple more
but yes it's worth the rm5 now due to the uncertainty over what gamuda may choose to do with the excess cash. they may use it for the benefit of gamuda and lower our returns
Questions to sifu: - if eventually the LDP and SPRINT sold to ALR, Litrak share holder will get 5.08? - if eventually no deal, Litrak share will drop back to 4.00 level? - So now is the guessing game that we buy or sell Litrak share based on our believe whether the acquisition will success or not, right? - Why Gamuda only gain ~0.10 after the announcement of the acquisition, but Litrak gain ~0.60?
I think no harm to keep the share. If deal, we get 5.08. If not, still ~4.00 with quarterly dividend (~1%+ quarterly) as we are enjoying now. Eventually will still make profit more than 5.08. And there will be more attempt to acquire the highways in future.
@Hemsley, as commented earlier, if the deal falls through, Litrak management is likely to issue a new Sukuk at more or less the same term. The cash raised can be distributed as a special dividend given Gamuda's need for cash to fund its mega construction projects. The special dividends will not as high as 5.08. But it's likely to be still substantial, coupled with future dividend payout. When all future cash flow is discounted to present value, my estimate is the value will still be around 5 based on 7% discount rate, which is in line with reported 6-8% discount rate in the DCF valuation cited by analysts.
Say it again here. I thank EVEBITDA who has mentioned this idea in the i3 forum in last Oct, which prompted me to further accumulate the shares.
My own strategy is I may dispose some if share price goes higher, but don't mind keeping it too for aforementioned reason.
As to why Gamuda share price only gains so little, note highway concession business only contribute to 20-25% of Gamuda valuation. Besides, the offer price by ALR matches most analysts' valuation for Gamuda highway business. It means there is little surprise for Gamuda, apart from expectation of some special dividend.
The Enterprise Value which forms the basis to arrive at the offer price by ALR is derived using discounted cashflow approach. This DCF approach essentially discounts the future cash flows from operating activities and cashflows from investing activities to arrive at free cash to the firm. This would imply that future toll rate hikes and future traffic growth would have already been embedded into the valuation, also implying that the offer is fair.
Regarding @Traderjoes concern on whether or the disposal to ALR is a good deal considering the timing of Sukuk’s full settlement and potential increase in future dividend from a stream of future cash flow that is relieved from debt obligation, the truth is the upside has already been embedded into the valuation. Referring back to the above para regarding Enterprise Value, you would observe that EV is derived by discounting free cash flow to the firm, this is before considering the debt obligation of the company. Equity value of Litrak, which is what investors like us would be getting in turn is EV less debt outstanding. As such, the price offered by ALR has already taken into consideration of the future cashflow of litrak. What is being offered today is merely that stream of dividend, discounted back to today to take into consideration of the timing of those future cash flows. Do note that the additional estimated RM200 mil per annum will not be received today. It will be received in the future.
As to whether Litrak will reject the deal, this matter is above the paygrade of Litrak’s management and Board of Directors. This offer from ALR has now become a matter which requires shareholder’s approval. Since this disposal is likely a ‘Major Disposal’, it would require consensus of at least 75% of Litrak’s shareholders’ approval. I believe approval is forthcoming given that i) Gamuda owns 43.18% (no objection from Gamuda I suppose); ii) This offer is fair as highlighted by all analyst covering Litrak and Gamuda. This imply that a similar conclusion would be reached by the Independent Advisor to be appointed by Litrak’s Board and also the other Institutional Investors which owns 41.83% (Institutional Investors are no slouch when it comes to valuation).
Thereafter, we can expect both Gamuda and other Institutional Investors to vote in consensus for declaration of dividend and capital repayment to get the cash back into their hands. Delisting is likely. Why is this scenario plausible? Its an open secret that Gamuda had long wanted to monetise its highway assets to fund its other business which Gamuda perceives to be more lucrative and core to its business, and also insulate itself from the policy risks of our government. As for the other Institutional Investors, they will have the view that they do not need Litrak to diversify its exposure into other businesses or industry since diversification can be done by themselves via their investing endeavour. In addition, while Litrak’s management and board has proven itself in the business of highway concessions, it remains to be seen if the same achievement can be replicated in other businesses.
Continuing from the above post. Apart from considering from the perspective of whether the deal will be accepted by Gamuda/Litrak, there is another consideration that will have to be taken into account and that is the likelihood of : i) ALR completing its fund raising exercise via sukuk issuance to fund the acquisition; and ii) willingness of Government to play ball in providing all necessary approvals to facilitate the completion of the deal, including the tax free status of ALR, the change of terms under the concession agreement and the change in shareholding structure of the Gamuda related highways.
Essentially, ALR will raise sukuk which is in a form of debt to fund the acquisition of the highways. Thereafter, ALR will operate the highway to generate cash flow to repay the sukuk holders and servicing its financing cost. Since sukuk is essentially a form of debt, the concern of the sukuk holders will be highly similar to those of a lender. They will be asking “will the borrower default on payment? Will I get my money back in accordance to the term of the loan agreement?”. As Litrak’s highways are matured assets, it is characterised as having stable traffic volume demand and minimal growth, which is expected of a matured highway. This in turn will translate into recurring and predictable cash flow from operation, alleviating concerns on unanticipated shortfall in cash flow to service the sukuk. In addition, the sukuk holders will be pleased with one feature of the highway restructuring proposal. This term is encapsulated in government’s willingness to extend the concession period in the event future traffic volume falls short on the projected traffic volume. This feature can easily be interpreted as some form of back stop feature by the Government to ensure that ALR is able repay its sukuk to prevent default, particularly on the sukuk tranches with longer term maturity. Such feature reduces default risks to the sukuk holders, further improving the probability of a successful fund-raising exercise.
continuing from above post Is our Government willing to bend its back all the way to do this you may ask? Unknown to many, our Government had been engaging highway toll concessionaires for quite some time now (years to be exact) to come up proposals that will lead to a win-win scenario for 3 key stakeholders for a toll highway business namely, the Rakyat, the Government, and the shareholders of the toll highway concessionaires. The Government understands that the interests of these 3 key stakeholders must be protected in order to resolve an age long dilemma of our Government that was stuck between a rock and a very hard spot for a long time. This dilemma comes in the form of whether they should continue to pay hefty toll compensation to the toll concessionaires for forbidding them to charge the toll rates based on was agreed upon under the concession agreement. On one hand, Government may face back lashes from the Rakyat which may threaten to diminish its popularity among voters and on the other hand if they do not hounor the concession agreement, the credibility of the Government as a counterparty that observe the sanctity of agreements that they have entered into will come under threat. This situation is not desirable for the Government as they understand any back pedalling or failure to honour terms of the concession agreement will inevitably, on the best-case scenario increase the cost of financing future Public Finance Initiative (“PFI”) as both borrowers and shareholders of the PFI demand additional premium to compensate for risks associated with this tendency of the Government to back pedal. On the worst-case scenario, all future PFI initiatives going forward will stifled (due to lack of financing and interest). Recognising the importance of the PFI model in ensuring that investment in infrastructure continue to take shape, which will in-turn drive development and economic progress, the sanctity of playing a fair game will have to be upheld. This is why the concession period will have to be extended. The magnitude of concession period extension is not a result of leverage that one has on the negotiation table, but rather, it is a result of a mathematical formulae to solve what is the additional number of years require to make up for the loss of free cash flow to the firm for lowering the revenue. All this is off course after taking into consideration of the time value of money. One has to bear in mind that the private sector operate on one mantra only as opposed to charitable organisation. The private sector’s mantra is long term wealth creation for its shareholders. Any investment must take into consideration of appropriate risk-adjusted return.
The fact that ALR has been established with board filled with reputable corporate leaders, I am certain that the deal already had Government’s blessing long before it was announced as there would have been countless engagement with the government and many level of meetings within the Government to clear the various ministry’s concern even before the deal can morph to the stage of ALR’s establishment. I wouldn’t be surprised if the Government is already in the final stages of formally approving what was announced in Litrak’s announcement.
@Nikola, appreciate your insightful analysis, which I fully agree.
Since the announcement, Litrak price has inched up from around RM4.4-4.5 to current level about RM4.7. Analysts mentioned the disposal is equivalent to RM5.08 cash per share. Assuming no further assets or liabilities at holding company level, let’s assume shareholders can expect to get back about RM5.1 in a few month time upon delisting. That means current price still has about 9% discount to potential full value.
The discount probably reflects the uncertainties you mentioned – hiccups in ALR’s Sukuk arrangement, and more likely the acquisition gets derailed due to political reasons, on top of time value of money.
Balancing the uncertainties against the current share price discount, do you think the market is overly cautious, or optimistic, or just about right?
Posted by observatory > 30 minutes ago | Report Abuse
@Nikola, appreciate your insightful analysis, which I fully agree.
Since the announcement, Litrak price has inched up from around RM4.4-4.5 to current level about RM4.7. Analysts mentioned the disposal is equivalent to RM5.08 cash per share. Assuming no further assets or liabilities at holding company level, let’s assume shareholders can expect to get back about RM5.1 in a few month time upon delisting. That means current price still has about 9% discount to potential full value.
The discount probably reflects the uncertainties you mentioned – hiccups in ALR’s Sukuk arrangement, and more likely the acquisition gets derailed due to political reasons, on top of time value of money.
Balancing the uncertainties against the current share price discount, do you think the market is overly cautious, or optimistic, or just about right?
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