[sustran] Malaysian highways and rail projects "restructuring"

[Paul Barter]

Below is an AFN report on the "restructuring" yesterday of the Renong
company in Malaysia.  Please don't ask me to make any political or ethical
judgements on this... (it is politically too hot to handle, sorry .... as
the article says, Renong is regarded by many as a "political counter").  I
am simply passing on the news item, since it involves some of the largest
transport infrastructure projects in the country.

First some explanations of terms:
* "Projek Lebuhraya Utara-Selatan or PLUS" is the privatised North-South
expressway between Singapore and the Thai border;
* "Linkedua" is a recently opened expressway section and second causeway to
Singapore;
*  "Sistem Transit Aliran Ringan Sdn Bhd (STAR)" is an urban "light" rail
system;
*  "Projek Usahasama Transit Ringan Automatik Sdn Bhd (PUTRA)" is another
urban light rail system (opened this year); and
*  "KTM Bhd" is the national railways company which operates interstate
services as well as a new electrified suburban rail system.

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FOCUS: Taxpayers/UEM shareholders to foot cost of Renong restructuring

AFN, KUALA LUMPUR - Taxpayers and United Engineers (Malaysia) Bhd
shareholders will bear the brunt of Renong Bhd's 10.5 bln ringgit
restructuring proposals, which tackles the issue of the company's debt
but not its future earnings performance, analysts said.

They said the huge restructuring proposal -- which will see the
government foregoing up tax payments and UEM's unit, Projek Lebuhraya
Utara-Selatan or PLUS redeeming the government bonds with its future
cashflow -- is basically aimed at bailing out Renong Bhd.

Some analysts said the government had no real choice but to bail out the
Renong-UEM group which accounts for 5.0 pct of total loans in the
domestic banking system, making it too big to be allowed to fail. "The
possible fallout from such huge defaults will more or less break some
banks, therefore the companies must be bailed out," one analyst said.
However, after the bailout, Renong will still not be an attractive stock
as the company has not announced plans to improve earnings, only to
reduce its debts, analysts said.

They also raised concerns the government is sending out the wrong signal
in bailing out a resource that is not involved in a productive sector
like manufacturing. "Money is so scarce now, so why are we putting it
into this sector. Should we not put it in the manufacturing sector?" an
analyst with a foreign research house said. "It is very clear. The cost
(of the restructuring) will be borne by the taxpayers and PLUS
shareholders who are also effectively UEM shareholders."

He said Renong cannot shift the blame of not making enough money out of
its concessions to the government as they had bid and won the projects
earlier. "Obviously they thought they could make money out of these
projects. That is why they bid ... Do you think if they had made money
they would have shared it with us?"

The first part of the restructuring, which involves repaying 824 mln ringgit
of UEM's unit, Linkedua (Malaysia) Bhd's debts, essentially involves the
government waiving 824 mln ringgit of its support loan due from PLUS.  The
government will recover this amount later from Linkedua. No payment date
has been fixed, he added.

In addition, the remaining amounts due from PLUS to the government have
been deferred, again with no specific repayment date mentioned, the
analyst said. "In effect taxpayers are footing the bill as payment due
has been deferred," he added.

The second part of the deal, which involves the issue of 4.5 bln ringgit of
bonds by the government, will effectively mean giving money to
non-profit making projects like the Sistem Transit Aliran Ringan Sdn Bhd
(STAR), Projek Usahasama Transit Ringan Automatik Sdn Bhd (PUTRA) and
the national railways company, KTM Bhd. "The question is PLUS will have
to redeem the bonds but over how many years are they going to take (to
repay). Clearly the government is losing out on revenue ... the tax
payers are losing out."

The third part, which sees the issue of 6 bln ringgit bonds by the
government, is a "direct bailout" of Renong by UEM. "All the money
coming in is to help Renong ... and Renong only has a small stake in
UEM. The question is why are UEM shareholders helping out Renong
shareholders."

Although the government will take up stakes in both STAR, PUTRA, and
KTM, details are still lacking, he added. He said the reason UEM gave
for helping Renong is that the company has a 2.9 bln ringgit debt "which
must be resolved."
"They have the gall to say this when the 2.9 bln ringgit debt came about
when they bought the 32.6 pct stake in Renong. If they had not bought
the stake, they would not have been landed with this problem in the
first place," the analyst said.

The analyst said he will not recommend a buy on Renong as the company
still has not rectified its cashflow problems. "If you look at Renong as
a company, it gets some dividend income from UEM, earns some money from
Faber (Group Bhd) and Prolink Bhd" but both the hotel and property
markets are hardly booming. "I see Renong still being hard pressed to
meet interest payments even with a lesser debt load ... where are they
going to generate revenue? There is no earnings to support even a
reduced debt level."

He said Renong is still very much a "political animal" and as such its fate
and prospects are very much linked to the current leadership, adding: "It is
a political counter and tied to who is in power. Look at what happened
to (former Indonesian president) Suharto-linked companies. "For me to
revalue UEM upwards, there must be a fundamental change in the company.
Either it sells off its assets like PLUS or gets a good toll hike."

He is downgrading UEM to a sell as PLUS will now have to bear the costs
of not only the UEM group but also the Renong group. UEM has debts of
about 12 bln ringgit while Renong has debts of about 8 bln ringgit, most of
which are project finance which are non-recourse to the holding company.
- AFN