Friday August 31, 2012

Govt takes over highway

It announces plans to buy the EDL from MRCB


KUALA LUMPUR: The Government will acquire the Johor-based Eastern Dispersal Link (EDL) from Malaysia Resources Corp Bhd (MRCB), confirming speculation on the matter and turning analysts bullish on outlook of the construction giant.

Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop, was quoted by Bernama as saying that details of the takeover would be discussed at a later date.

The minister's press secretary Mohd Kamel Oth man said that the matter had been annou nc ed by the minister but there were no details on the purchase.

“The cost of this purchase was not announced by him,” Kamel told StarBiz.

Analysts were generally positive about this dev elopm ent but their analysis would hinge on the final price of the EDL by MRCB to the Government.

SJ Securities analyst Nick Foo said this was “good n ews for MRCB” and he would likely re-rate this stock.

An analyst with M&A Securities said this development meant that MRCB would be able to reduce its gearings.

“However, in the longer term a highway provides a reliable income stream, and MRCB may lose out because of this sale. But since there may have been pressure for MRCB to lower toll rates, we con sider this purchase a good alternative,” the analyst M&A said.

Meanwhile, MIDF anal yst Iqbal Zainal said MRCB would be able to free up necessary capital to focus on property development.

“Based on our internal calculations, on a discounted cash flow basis, the EDL asset could be worth around RM1bil. I do not discount a special dividend payout post takeover and some of it could also be used to fund new property projects. It can go either way,” he added.

Hong Leong Investment Bank construction sector analyst Jarod Soon said that the plan was good for MRCB on the surface and it fitted into the bigger theme of rationalising the country's highway assets.

“There could be a special dividend payout for MRCB's shareholders but the proceeds from the sale could also go towards future la ndbanking exercise to secure financial growth with profitable investments,” Soon said.

RAM Ratings had recently downgraded MRCB's unit MRCB Southern Link Bhd's debts on the premise of the company's significant liquidity stress as it was not allowed to commence tolling as set out in the concession agreement.

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