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TAKING PLUS PRIVATE – SHARING RETURNS WITH THE rakyat

Dato’ Noorazman Abdul Aziz
Executive Director, Investments and
Co-Head of Investments (Divisional Management)

As the strategic investment fund of Malaysia, Khazanah’s mandate includes delivering financial, strategic and societal returns. The initative to take PLUS Malaysia Berhad (PLUS) private in 2011 is a reflection of how we strived to balance between commercial and societal needs.

The challenge for us was to find the most suitable custodian of a nationally strategic infrastructure asset, and forging a partnership that would benefit the rakyat ultimately.

PLUS is the biggest highway concessionaire in Malaysia with a total of 986.5 kilometres of roads under its purview. It operates the longest highway in the country, the North-South Expressway (“NSE”), which spans the length of Peninsular Malaysia from Bukit Kayu Hitam in the north, near the Thai border, to the southern city of Johor Bahru, which borders Singapore. The NSE remains an important backbone for Peninsular Malaysia, greatly enhancing the rate of development for town along the west-coast states of Peninsular Malaysia. Besides the NSE, PLUS also operates several shorter highways including the North Klang Valley Expressway (NKVE).

The Jalan Duta toll plaza on the PLUS New Klang Valley Expressway

Toll rates have always been a controversial subject in Malaysia, and PLUS concession terms have been restructured many times in the past. The last time PLUS had a rate hike was in January 2005 when toll rates increased by 10% to 13.6 sen per kilometre. There were no further increases and by 2010, the accumulated cash compensation due to PLUS in lieu of the toll increases amounted to around RM800 million each year.

With EPF on board, we were able to structure a transaction that ultimately benefited public interests yet made good business sense. The transaction involved a RM23 billion cash offer for the assets and liabilities of PLUS, with eventually UEM Group, which is wholly-owned by Khazanah, holding 51% of PLUS and EPF 49%.

The privatisation of PLUS was a landmark transaction as it was the second largest M&A deal in corporate Malaysian history and the largest for a single company. The sukuk raised for the transaction amounted to RM30.6 billion, making it the largest single sukuk issuance in the world. More significantly, it also involved a restructuring of concession agreements that resulted in a five-year moratorium on toll increases built into the agreements.

A stall at the Sungai Perak Rest and Service Area along the North-South Expressway. The stalls at PLUS highways provide income opportunities for surrounding communities.

It was clear that PLUS’ tolls needed to be restructured to help ease the burden on the rakyat. At the same time, given that this was a key strategic national asset, some element of Government of Malaysia influence or ownership remained desirable. There was also a need to restructure the ownership of PLUS to ensure greater alignment of interest between PLUS’ shareholders and the general public.

For a restructuring of such scale to take place, it was deemed to be best that PLUS, which was public listed at the time, be taken private. In finding a suitable partner for the privatisation, the Employees Provident Fund (EPF), which has over 14 million members, was considered as the ideal candidate, as the collection of tolls would indirectly flow back to the rakyat. PLUS’ assets were also deemed as an attractive investment to EPF as they were seen as a brownfield investment and provide a steady stream of income.

SUMMARY OF BENEFITS TO STAKEHOLDERS
RAKYAT
  • Reasonable future toll rates
  • Tolls paid accrue back to the rakyat (EPF contributors)
  • Safe highways with quality preserved
  • No extension in concession life
GOVERNMENT
  • Save on toll compensation and reduction in toll hikes
  • Preservation of a national asset
CAPITAL MARKET
  • Fair exit price for shareholders
  • Bondholders’ interests protected
STAKEHOLDERS
  • Strong, stable cash generating asset
  • UEM track record in toll roads preserved

There were several key takeaways from this deal. For a transaction involving a major public asset such as PLUS, it is important to put the public interest at the heart of the matter. From a stakeholder perspective, the rakyat benefited from a moderated rate of toll increases with the freeze on toll increases effective for five years following the deal. Secondly, securing the deal on a good public platform has led to a positive outcome not only in commercial terms but for the rakyat – the ownership by EPF meant that its share of tolls collected would effectively accrue back to the rakyat as EPF contributors. Finally, it is also crucial to identify the most efficient financial instrument and strategy to bring about a mutually beneficial conclusion to the transaction.