Published October 19, 2009

MALAYSIA INSIGHT
Can Asas Serba pull off proposal?

By S JAYASANKARAN
KL CORRESPONDENT
Email this article
Print article
Feedback
Bookmark and Share

IT APPEARS that the staggering RM50 billion (S$20.7 billion) proposal from little known Asas Serba to buy all 22 highway concessionaires in the country is a serious one.

The proposal - first reported by BT two months ago - calls for the company to buy over the tolled highways and cut tolls by 20 per cent on the premise that owning all of the nation's tolled highways would result in economies of scale and, presumably, lower costs.

That this is a proposal considered seriously by the government cannot be denied. Nor Mohamad Yakcop, the minister of the Economic Planning Unit, dismissed the notion last month only to be contradicted by his boss Prime Minister Najib Razak.

Mr Najib, who is also finance minister, said he hadn't seen the proposal yet, which implied that he was waiting to see it. This is a sharp reversal from the same Mr Najib who, two months ago, said that Khazanah, the investment arm of the federal government, had no intention of selling Plus Expressways, the biggest toll concessionaire in Malaysia. The premier is also the chairman of Khazanah.

Mohamad Syed Amin Aljafri, seemingly the head of Asas Serba, told reporters on Saturday that his firm's plan would result in considerable savings for the government - RM14 billion until 2038, according to him. And he emphasised that the plan would not entail 'one sen' of government money.



That is all very tempting given that Kuala Lumpur faces a large budget deficit which the government itself estimates at 7.6 per cent of gross domestic product this year. It is also true that the public is growing increasingly disgruntled by rising tolls very two to three years, never mind the fact that it was Kuala Lumpur that allowed itself to sign such lopsided agreements - the words of Lim Keng Yaik, a former minister, not mine - with the concessionaires in the first place.

Which brings us to this argument's logical conclusion. If the government does not have to provide any funding, where would a completely unknown company get RM50 billion without, to take Mr Syed Amin at his word, any sort of government guarantees?

It would have to be bonds backed against the combined cash flow of the 22 highways. This will not be easy as the figure is an enormous one and there are other infrastructure projects out there - the water projects, the light rail transit extensions, to name but two - that need funding.

Asas Serba's enormous need could cause an oversupply of bonds in the market and result in a higher cost of funds to other issuers. Investors might simply demand higher yields from every other issuer.

Much would depend on the firm's credit rating. But it has neither the track record nor, presumably, the balance sheet because if it did, it wouldn't have to turn to the market. The 22 firms it proposes to take over are also vastly different, with varying concession agreements and dissimilar pricing structures.