Friday 14 March 2014

Confusion over offer for PUNCAK?

News has reported that the total offer for the 4 water players in Selangor has been reduced by RM2b from RM9.65b to RM7.65b.

The share price of Gamuda and Puncak has reacted negatively to the news.

Recall, the Selangor State Government had offered RM9.65b to the 4 water players in the state. And for SPLASH in which Gamuda has 40% stake, it included surplus of assets over liabilities which was believed amounting to about RM2.2b. Together with the offer of RM250.6mn for equity contribution plus 12% roe annually, the offer to acquire SPLASH came to about RM2.4b-2.5b.

However, in the subsequent offers in November 2013 and February 2014, the item of surplus of assets over liabilities was removed. This resulted in SPLASH rejecting the offer as the amount offered was 90% lower than the amount offered in February 2013. SPLASH is expected to receive only RM250.6m versus about RM2.4b-2.5b offered about a year ago. If SPLASH had accepted the offer, the would lead to disposal loss of RM2.3b.

What I would like to highlight here is that the saving of RM2b mainly comes from the reduction in offer price for SPLASH and the offer to PUNCAK is largely unaffected, I believe.

With the selldown in PUNCAK, could this present a good opportunity to accumulate the stock?

If I understand it correctly, PUNCAK is expected to receive RM1424m (RM1117.5m for 100% stake in PNSB + RM306.5m for 70% stake in Syabas). This works out to be RM3.46 per Puncak share or RM3.15 per Puncak share including new shares from the conversion of warrants.

The disposal of water assets is expected to reduce the group's debts substantial and both assets and liabilities are acquired simultaneously. Besides, it has oil & gas business.

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