THE corporate figure who has made a surprising RM40 billion bid for the five PLUS highways says there will be no toll hikes if he is successful in the bid.

But to date, Abu Sahid Mohamed, the group executive chairman of Maju Holdings Sdn Bhd group, has not received any encouragement from UEM Group Bhd and Employees Provident Fund (EPF) – the two shareholders of PLUS.

Maju Holdings recently offered to buy 100% of PLUS, and sources with knowledge of the deal said he planned to freeze toll rates for 20 years until the end of the concession period.

The Maju Expressway (MEX) owner said his was a refreshing proposal, which goes against the thinking that highway concessionaires will lose money without rate hikes, as most toll concession agreements have built-in hike clauses.

In an interview with The Malaysian Insight, Abu Sahid explained his calculations, putting his estimation of PLUS’ operating expenditure at 42% (although PLUS has published its opex as 35%), which the tycoon described as “mad”.

“Where is there a business with opex that is more than 40%? They are mad,” Abu Sahid told The Malaysian Insight.

He has offered RM4 billion cash to take over the RM30 billion in contingent liabilities and to waive the RM1 billion owed to PLUS by the government, which is Putrajaya’s compensation to the highway concessionaire in lieu of a hike freeze until the concession ends in 2038.

PLUS is owned by UEM and EPF with a 51% share and 49% share respectively. UEM is wholly owned by Khazanah Nasional Bhd. The government has a golden share in PLUS.

UEM and EPF acquired PLUS in 2010 and have reaped handsome dividends from the highway operator. 

According to a filling with the Companies Commission of Malaysia, PLUS has paid some RM2.85 billion in dividends to its shareholders, UEM and EPF, up until 2015. 

Both UEM and EPF have said they do not intend to sell their stakes in PLUS.

Punching the numbers on his calculator furiously to prove his point, Abu Sahid said his deal would be a better one of for the people and the country in the long run. 

“Right now, EPF gets RM400 million in dividends. Divide that by 14.5 million members, each person gets RM27.50 sen annually. My deal is RM4 billion to EPF and UEM. Assuming RM2 billion each, each EPF member gets RM137. And toll rate is frozen until the end of the concession,” he said.

Below are excerpts from the interview.

TMI: Why the sudden interest in PLUS?

AS: All the highway concessionaires were called to a meeting by Malaysian Highway Authority (LLM). We were told not to increase toll rates. Everyone presented why they should increase the rates. I got curious about PLUS.

Their highway has been there for a very long time and already had a second renewal (of concession period). Their cost should be cheaper. They have a long highway. There is economy of scale. The bigger, the cheaper. I am a busybody businessman. So, I went looking for information and I saw a way to bring down the cost.

I got my analysts to look at the numbers and then contacted independent investment banking advisory firm Evercore Group LLC. I asked them if it was possible to operate the toll without increasing the rates. 

They were surprised. Usually their client would ask them how much can they make with toll rates. They calculated and found we can run the highway without increasing toll rates, taking into account the RM30 billion debts.

I am not here to become a champion. I have been in the business for 40 years. I have made my calculations. 

TMI: You wanted to sell MEX at one time. So why are you so keen to buy PLUS now?

AS: Everything is for sale. The only thing that cannot be sold are parents, wife and children. 

I never said I wanted to sell MEX. People offered to buy. The first was EP Manufacturing Bhd (EPMB). We agreed to a price and I was also not interested to build MEX 2 so I decided to sell.

They paid a deposit but it didn’t work out. I can forfeit the down payment but I returned the money.

Then IJM wanted to buy. I didn’t want money. About RM1.1 billion. But I wanted 10% shares in the company. The share price at that time was RM5.40 but they wanted me to pick up at RM6.

And they will only give me a 4.9% stake and I will have to pick up the remaining 5.1% from the market. I don’t even want a seat on the board but they realised if I get 10%, I will be the largest single shareholder. 

IJM and Maju have businesses in the same sectors, such as construction, plantation and road building. So, it didn’t work out in the end.

TMI: Why would they even want to sell to you?

AS: Because the highway is not run well. It is very dirty, has a lot of accidents and too many potholes. They don’t educate people how to drive and use the highway.

People throw plastic bottles on the highway. How can you say the highway is well run? During Chinese New Year, you take 12 hours to travel on the highway. How can you say it is good? There is also a difference between resurfacing and patching up roads. They don’t even alert people about crosswinds. 

TMI: Do you plan to expand the entire highway to a minimum of three lanes? How about lighting up the entire stretch? What are your plans to improve the highway? 

AS: LLM supervises everything from landscaping to expanding the road. When you reach level D (the level of road congestion), you have to expand. You have to do maintenance. Lighting is not necessary but I offered to put lights if I get to buy PLUS. In the concession agreement for MEX, there was no necessity to put lights but I put it in. 

I also want to enhance safety and security. We will put 24-hour CCTV surveillance for the entire highway and invest in emergency response vehicles. I will have 100 lamp posts up within the first month of acquiring PLUS.   

TMI: How much will it cost?

AS: About RM3 billion for lights, upgrading, railings and to educate highway users. They (PLUS) don’t do all these things. We will do a better job. 

I don’t see why they don’t want to accept my offer. It will be good for the people and country. EPF keeps saying it wants to safeguard its members.

Currently they get RM400 million in dividends (annually) and have to divide it among 14.5 million members. It comes up to RM27.50 sen per member per year. I doubt they can sustain this dividend as they have to start servicing the principal of the RM30 billion bond (taken to finance the purchase of PLUS shares) in 2020.

I also don’t understand why they were allowed to pay dividends when they have not started paying the principal. So what if it is guaranteed by the government?

Anyway, when I take over the bond will be rated AA. It will not be government guaranteed. The coupon rate is 5% to 6% as compared with the current 3.8%.  You will get higher return with me.

TMI: What if you fail?

AS: If I fail, they already get the RM4 billion that I am paying to them. And if they participate in the bond, they will be able to take the highway that has been upgraded.

If a person owes you and cannot make payment, then the house is yours. You already got the RM4 billion. You pray for me to fail.

TMI: How will you manage without raising toll rates?

AS: That is why I want to put in lights so that more people will travel at night. I want to reduce the cost. Their (PLUS) cost is very high. Their operating expenditure (opex) is more than 40%.

(PLUS’ published operating expenditure is 35% but Maju’s calculations put it at 42%.) Where is there a business with opex that is more than 40%? They are mad. 

I run MEX on 12% to 19% opex. I can certainly bring value to PLUS. I also want to unlock land values along the highway. 

TMI: Since everything is for sale, what is there to stop you from selling PLUS later?

AS: If I want to sell PLUS, it will be very difficult. Not many people can come up with RM36 billion. RM30 billion for the contingent liability, RM900 million the compensation owing, RM4 billion cash to EPF and UEM.

TMI: But EPF and UEM are enjoying good dividends?

AS: In the past five years, they got RM3.6 billion dividend. Their capital is RM3.4 billion. They have got back their capital and RM200 million profit. That’s it. Now I am giving you RM4 billion.

So, your profit is RM4.2 billion. If you divide that by five, you get a 20% return. What investment does EPF have that can get this kind of returns?

Also in the next 20 years, the increase of toll is about RM20 billion. The government will save the RM20 billion. If the government don’t want to increase the toll, the government will have to pay compensation. Or the people will have to pay. 

With me, they don’t have to pay anything. Government doesn’t have to pay and people also no need to pay. 

EPF is assuming they can carry on paying the dividend. They have been taking the dividends even before they pay principal. It is highly unusual. They have to start paying the principal soon.

The amount for repayment will start to escalate and the amount of dividend they have been getting from PLUS may not hold. 

TMI: So for the next 20 years what kind of traffic volume and return on investment (ROI) that you are looking at?

AS: I expect the volume with increase to be around 3% to 6% depending on the economy of the country. As for ROI, I am a private company. I don’t have partners to fulfil their expectations.

My first obligation is whether I can pay the bond. Then my obligation is to the public. I promise to give them a good highway. Then I am only concern about profit. I want to make money, of course.

If I can pay the bond, I can make RM200 million or RM300 million, I am happy. If I can make RM500 million, it is a bonus. If I can make more, champion. Even if I make RM1, I am happy. – September 26, 2017.