Privatising Litrak most logical solution to cap toll

Friday June 5, 2009
Privatising Litrak most logical solution to cap toll
By YVONNE TAN

PETALING JAYA: The privatisation of concession holder Lingkaran Trans Kota Holdings Bhd (Litrak) by the Government is the most logical solution to cap toll rates, a local research house said. In a report yesterday, HwangDBS Vickers Research assumed an offer would be made for Litrak at its (HwangDBS) target price of RM2.70 per share, implying a market capitalisation of RM1.3bil.

The research house said funding would not be an issue given that the Government was able to issue long-term bonds of 20 to 25 years (the concession runs for another 21 years) at the current prevailing Malaysian Government Securities’ (MGS) annual yield of 4.4%. Litrak is the concessionaire for the 40 km Damansara-Puchong Highway (LDP), which links the various urban areas within the Klang Valley. It also holds a 50% stake in Lebuhraya Sistem Penyuraian Trafik Kuala Lumpur Barat Sdn Bhd (Sprint), which is currently loss-making.

Assuming the current toll rates of RM1.60 are maintained through the 30-year concession period, the LDP could still generate enough income to pay for the new bond issued by the Government, HwangDBS said. “But this may not be adequate to service interest and principal on the existing bond,” it added.

While government bonds generally enjoy a sovereign rating, Litrak’s current facility of RM1.5bil has a AA2 rating which implies a higher cost of funding. Based on the privatisation price of RM2.70 and a projected dividend per share of 20 sen, the Government stood to yield some 7.4%, a spread of 300 basis points at the current prevailing MGS yield of 4.4%, HwangDBS said.
Litrak closed up 2 sen to RM2.30 yesterday.

The LDP concession has been viewed as a pure cash cow by the opposition political party.
Tony Pua, Petaling Jaya Utara MP, has been quoted as saying that “the LDP cost RM1.33bil to build, but over the 30-year concession period, they stand to make RM18.87bil. Whatever Litrak will collect for the next 20 years is definitely excessive profit,” he said. He added that the 30-year concession agreement could be expropriated or bought over by the Government, if that was in the national interest.

Meanwhile, another analyst said: “I don’t buy this privatisation story. I think if the Government is serious about pump priming the economy, it would spend money to create new infrastructure rather than buy existing infrastructure.” A study by the Economic Planning Unit to address issues faced by those who are financially burdened by toll fees is expected to be ready by end-July.

Based on Litrak’s existing concession agreement, toll rates will increase by 50 sen in 2011 to RM2.10 and a further RM1 in 2016 to RM3.10. The rates will then remain status quo at RM3.10 from 2016 to 2030, which is the end of the concession period.