- The Edge Financial Daily reported that water talks for the takeover of Selangor assets are expected to begin in November.

- The report quoted Selangor Menteri Besar Tan Sri Khalid Ibrahim as saying that the “text of arrangement” between the state and federal government is being prepared, along with the final offer documents to the concessionaires.

- He also clarified that the Selangor state has not issued a new offer but is currently ironing out details on “how best to make the offer”.

- Recall that the last and fourth offer made in Feb was RM9.65bil.

- Kumpulan Darul Ehsan Bhd (KDEB), Selangor’s investment arm, had earlier indicated the takeover would likely be priced the same as the previous and fourth offer.

- Khalid also reaffirmed that the Langat 2 water plant is part of the water restructuring talks. Langat 2, which will treat 1.9bil litres of raw water, is crucial to ensure sustainable supply to the Klang Valley.

- The news further reaffirms our optimism about a concerted effort by all parties to reach a concrete solution by year-end. In recent months, both the federal and state governments have affirmed their intention of concluding a deal soon.

- Terms of the new deal is likely be similar to that of the previous offer; the equity contribution plus 12% ROE amounted to RM2bil, while the remaining RM7.7bil is for the “water assets, which were equivalent to the liabilities to be assumed”, including government loans and bonds.

- Following the consolidation, the state will hold all the water concessions through a special purpose vehicle, while the assets would be owned by Pengurusan Aset Air Bhd (PAAB), a wholly-owned unit of Ministry of Finance Inc.

- The state government would then lease the assets from PAAB and operate with a service licence.

- With these new developments toward the resolution of the water impasse, we maintain OVERWEIGHT on the water sector.

- We have a BUY on Puncak Niaga with a fair value of RM4.02/share, based on a 40% discount to its NAV. We also estimate Kumpulan Perangsang Selangor Bhd’s (KPS) implied value at RM2.54/share, based on a 40% discount to its break-up value of RM4.23/share. 

Source: AmeSecurities