Air Selangor denies claim Splash purchase overpriced

Air Selangor denies claim Splash purchase overpriced
Air Selangor said the net book value of Splash has been verified by three independent parties: RHB Investment Bank, international accounting firms Deloitte and Ernst & Young. — Picture by Shafwan Zaidon

KUALA LUMPUR, Aug 10 — Pengurusan Air Selangor (Air Selangor) today refuted former Selangor Mentri Besar Tan Sri Khalid Ibrahim’s claim that its offer to acquire Syarikat Pengeluar Air Selangor Holdings (Splash) for RM2.55 billion was 10 times more than the value of the company.

Air Selangor said the valuation of RM250 million for Splash was derived by applying 12 per cent Return On Equity (ROE) by shareholders of the company since year 2000 after deducting dividends.

“The consideration of RM2.55 billion offered by Air Selangor on 3 August 2018 represents a 28 per cent discount of the net book value of Splash.

“As at 30 June 2018, the net book value of Splash amounted to RM3.54 billion,” Air Selangor CEO Suhaimi Kamaralzaman said in a statement.

Selangor under Khalid had made a RM250 million bid to buy Splash in 2013, but Air Selangor claimed that the bid was 86 per cent lower than the book value of Splash which was RM1.84 billion at that time. The bid was rejected.

Air Selangor said the net book value of Splash has been verified by three independent parties: RHB Investment Bank, international accounting firms Deloitte and Ernst & Young (EY).

RHB’s valuation as at March 31, 2015 was RM3.2 billion. Deloitte had come up with a valuation of RM 2.7 billion in 2017 and EY valued Splash at RM2.8 billion as at March 31, 2017.

Air Selangor also strongly refuted the accusation that special treatment was given to SPLASH.  

The water firm said the discount applied in the Splash transaction was higher than the discount in the acquisition of Puncak Niaga (M) Sdn Bhd (PNSB) in 2015, the water treatment operator owned by Puncak Niaga Holdings Berhad.

In the PNSB deal, Air Selangor paid a price equivalent to 0.86 times of the net book value of PNSB’s water concession business, i.e. a 14 per cent discount on the net book value of PNSB’s water concession assets.  In that transaction, Air Selangor did not acquire PNSB’s non-water concession assets.

Bonds and loans owed by the four water concession companies totalling in excess of RM8 billion will be taken over by Pengurusan Aset Air Berhad (PAAB) and restructured into long term lease rental upon the culmination of the sale.

Water related loans extended by the federal government to the Selangor State Government exceeding RM1.1 billion will also be restructured into long term lease rental.

Air Selangor also said that all water concessions will be terminated and the multiple layers of profits previously enjoyed by private concession companies such as Splash will be no more.

Upon the conclusion of the sale, cost of treated water will fall from the current RM1.37 per m3 in bulk supply rates (BSR) paid to Splash to rates starting from between 42 to 44 sen per m3.

This reduction in operating cost arising from the consolidation of water supply services to be undertaken by Air Selangor in a holistic manner will have a positive impact on the operating efficiency of Air Selangor, said Air Selangor.

With the acquisition of Splash and the conclusion of the Selangor water industry restructuring, Air Selangor said it will have access to attractive funding terms from PAAB for its future capital expenditure projects. The terms of funding under PAAB are more attractive than commercial funding with lease payments spread over 45 years at affordable lease rates.

The sole shareholder of Splash, Syarikat Pengeluar Air Selangor Holdings Berhad, had on August 9 accepted the offer by Air Selangor.

With this acceptance, the restructuring of the water services industry in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya is expected to be completed by the end of 2018.

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