Tuesday, June 1, 2010

Asas Serba's $50 billion Toll Takeover Plan

Not everyone know very well of who is this entity called Asas Serba is except that for a start, they plan to takeover all the toll concessionaires in Malaysia with the offer of $50 billion.

I for one would definitely have that entity take over the entire North South Highway concessionaire, for a start, because it will definitely save the government compensation money and subsidy of having to pay PLUS until the period of concession expires in 2038, another 28 years from now or so. That is, if Asas Serba has at least one notable track record, the plan of reducing the toll by 20 percent and making the prices final - no more adjustments -  But it is the lingering doubts over several aspects that cast doubts over whether the government would give a go ahead over that plan. 

Chances are that the proposal of takeover would be rejected because of the no track record thing factor. But the government is definitely stuck over sacrificing their say over the highways against saving the subsidy for the economical end. If they are to nationalise all the highways, the cost will be at $383 billion, absolutely impossible with the current reserves in hand. On the other hand, if they decide to take the offer outright - it saves subsidy but violates one of Najib's tenets of not having rent-seeking and patronage.

But the government has learnt lessons from the peak period of Asian economic crisis. There were turbulent moments in the Malaysian economy. For instance, the government had to bail out Tajudin Ramli's MAS for an astronomical amount over losses incurred. And then there's the Renong problem, that they had to bail them out too. Such painful lessons would give the Najib administration, and those who were once part of the problem 13 years ago a likely say of nay to the proposal.

Funding will also pose a problem. The money comes by dividend bonds. Shareholders will need to be convinced of doing the right investment in investing bonds there. Or why not have a collective company acting as a single shareholder that holds 40% maximum of the company's share? Since the highways are used by people, why not make as people's property, that is jointly owned by people and government-in lead?

The other method would be buying back the NSE rather than paying compensations to PLUS. NSE only. Given the volume of vehicles travelling on the main route from Bukit Kayu Hitam to Johor Bahru increasing as per year, the profits that PLUS stands to gain from the present rates is more than enough to cover upkeeping and having a decent margin of after-tax profit.

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