The offers by the Selangor State government has been deemed as inadequate by most water asset players. Even if the state government were to up its offer, there is still the niggling doubt as to the ability of Selangor state government, via Kumpulan Darul Ehsan Bhd (KDEB), to secure funding for the exercise. As such, the offers are likely to be noncash or substantially non-cash.
As the offers did not assume the liabilities, the final offers are actually quite low. However, this should be perceived as the first of many to-and-fro to arrive at an acceptable figure. That is why the initial reply is expected from the players by 20 Feb. The acquisition deadline is end-March 2009. Looking at the funding ability of the state government, it is very likely that the state will absorb most or all of the liabilities in order to push the deal through.
The state government has to try to push for the deal as Puncak is slated to raise water tariff by 37% come April 2009. Water plays not dead, investors should not look at absolute values of the initial offer. Its a negotiation ploy. Recommendations and target levels still maintained as before. Even in the event that the state government fails to reach a solution with the players, the situation could be remedied by possibly Pengurusan Air Asset Bhd (PAAB) being asked to take over the Selangor operations. Currently PAAB and SPAN (authority for water supply development) are in discussions to takeover the water supply operations of Johor (under SAJ Holdings). It is expected to be completed by end of February 2009.
Hence if one is willing to hold out for a 3-6 months view, most of the water asset plays should bring about decent returns. The final acceptable offer has to see most or all of their liabilities being absorbed by the buyer, because none of them will accept otherwise as that would leave them possibly in deficit after paying off the debts.
p/s photos: Charlie Yeung
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