cost of debt is for Litrak specifically and not for ALR. ALR is buying at WACC of 7.95%. (see page 58) so provided borrowing cost below 7.95% and no reduced traffic ARL will pay down the loans earlier.
Thank you for your explanation. Let me try to understand the logic.
Based on my understanding, Affin looked at Litrak existing capital structure and other parameters, and it determined Litrak's WACC was 7.95% (page 58).
Applying this discount rate to management projected FCFF, it arrived at an equity value of 2,165 + 371 = RM2,536m, which was less than ALR's offer of 2,326 + 452 = RM2,778m (page 60)
That means if ALR were to use the same projected FCFF, its discount rate will have to be lower in order to arrive at the larger equity value of RM2,778m. But since the value is not much larger, the discount rate is probably not lower than 7%.
Given that ALR's funding is probably 100% debt, as long as its Sukuk rate is below 7%, the financing should be secured, right?
Refer to article below. The Work Minister said "For three highways [Kesas, SPRINT and LDP], the concession will be extended for five to 10 years, while [concession for] the SMART tunnel may be shortened, depending on the traffic data that will be reviewed from time to time"
By allowing the concession to be extended as necessary, it lower ALR's risk that concession runs out before it could fully pay down its Sukuk. This may in turn improves the Sukuk's rating and lower the rate. But Minister only mentioned traffic volume as reason for extension.
@csan wrote "if ALR cannot secure the funding they want at 5% interest rate...then the completion risk will increase significantly." @EVEBITDA wrote " 7.95%. (see page 58) so provided borrowing cost below 7.95% and no reduced traffic ARL will pay down the loans earlier" @observatory wrote "below 7%, the financing should be secured, right? " any more clarification from shareholders? thanks in advance
EVEBITDA, that's Litrak's WACC. Litrak is a combination of debt and equity. ALR is clear that they are looking to raise debt at 5%. that's how observatory pointed out the higher value ALR is offering. but if cannot do 5%, then will just reduce offer price to around RM2.54 billion lah.
not that the potential reduction in offer price is a lot...but ironshirt got so worked up. not hard to tell that he has a significant amount of capital in Litrak hahahaha. whereas most of us like me and speakup have taken a lot of profit at around 4.85-4.90 that day, so we're pretty chill because our holdings are quite small now. just waiting to see if there is opportunity to top up. if revised down to RM2.54 billion, then offer price will be at around current share price.
Meanwhile, the Minister has mentioned LDP and SPRINT "concession will be extended for five to 10 years". In other words, up to to 2040-44 if necessary.
This would have provided sufficient buffer against uncertainty. Therefore even if 10Y AAA were to hit 5% (it's not), I don't believe 5% is a hard limit. I can't find any mention that crossing 5% the deal will fall through. Not sure where the 5% comes from.
But I'm interested to know at what level of yield (I believe higher than 5%) the financing could be in trouble.
@observatory, Litrak proposed to sell their Assets at say 7% WACC. Thats the value of the asset (based on the concession agmt). ALR buys and proposes (obviously with Litraks support) to waive Govt Subsidy (and no more toll hike) and in return gets tax waivers ect. We all know Govt saves abt 4B in waiver of Subsidy whilst forgoing Tax hence geting ALR to buy at 5B. If ALR sticked to the concession agmt terms and raise bonds at below 7% they make money (provided traffic forecast and actual is same). Since ALR has changed the terms of concession agmt, its deemed a new proposal and hence has diff factors to consider. Thats why MOW gave them up to 2040-2044 as buffer to ensure the fund raising is successful. This proposal is a BIG win for the GOM to avoid paying the subsidy. You may see all approvals has been obtained from GOM even before Litrak shareholders. Its not normally the case in other deals. Lets not worry too much and hope shareholders do not vote against the proposals.
@EVEBITDA, yes, according to the list of conditionality published last month, the approval from all three ministries have already been obtained. The remaining conditions are for the vendor and purchaser. This has greatly reduced the political risk, where the Parliament is dissolved before necessary approvals can be obtained.
Earlier someone commented that ALR financing threshold was 5%.
In today Gamuda EGM, the management clarified that this was a misunderstanding. During an earlier interview with The Edge, Gamuda management mentioned ALR's WACC was 5%, and not that ALR's financing threshold was 5%.
While Gamuda could not speak on behalf of ALR, the management sounded positive by drawing attention to the fact that 10Y MGS had gone down by 40 basis point from 4.37% earlier to 3.97% as of yesterday.
I attended the EGM. As expected, questions about ALR financing came up.
To be fair, Litrak could not answer on behalf of ALR. So just like Gamuda, it could only point out conditions in ALR favor, such that it was triple A rated, first sustainable highway Sukuk, MGS yield has been coming down and so on.
It's funny that the Chairman assigned all the questions to their advisors, including questions which rightfully the Board itself should answer.
For example, when someone asked whether an extension would be given if ALR fails to raise funding in time, the Chairman asked Hong Leong to reply. But how could Hong Leong commit on behalf of Litrak board? So it was not a surprise that the Hong Leong guy just sidestepped the question and talked about something else.
This shows how much ownership the Board has in their company. I agree when someone mentioned that these people are probably busy looking for another job.
Assuming no hiccup, over 90% of proceeds will be distributed to shareholders within 45 days of completion date, where completion date is expected to be 15 Aug. The remaining will be distributed within 12 months.
raising funds through sukuk is similiar to ipo on bursa. for ipo, first step need to lodge exposure document with SC, then get Bursa approval and a long list of procedures. ALR has not even started the first step for their sukuk.
Buy some from spare fund after considering the returns vs risks at the moment with all the necessary approvals as todate which looks in favor of the potential returns. Anyone done any computation on the effective returns on this investment on the basis there is no hiccup with distributions as per the announced timetable ?
Aiyah some funny fella want to buy keep making stories for people to sell to them, what a joke. what are you doing here when you dont want to buy and make stories it wont go through? So lame lah. technically is government taking over to save on subsidies for toll rates. obviously they have the capacity to do it only they will trigger an EGM. Else they risk a positive vote to be reelected. You think Zafrul a joker?
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