Putrajaya may bail out water bondholders, says minister
The minister for energy, green technology and water revealed that swapping existing bonds with triple-A government-backed ones was one option on the table to buy stakeholders more time as state and federal governments try to break the current impasse.
“These are all permutations that can be looked at if all else fails,” Chin told The Malaysian Insider earlier this week, when asked if the Water Asset Management Company (PAAB) will issue new bonds to replace maturing ones.
Major bondholders include CIMB, Hong Leong Bank, Great Eastern Life and the Employees Provident Fund (EPF).
Selangor’s water players — Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Puncak Niaga Sdn Bhd (PNSB), Syarikat Pengeluaran Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS — are at risk of debt payment default as water bonds approach their December 31 maturity date.
The debt service problem started when Syabas was barred from implementing a 37 per cent tariff hike agreed upon in January 2009, after the Selangor government claimed the sole water distributor had not done enough to reduce leakages which cost the state millions.
This in turn led to payment problems between Syabas and water treatment concessionaires PNSB, Splash and Konsortium ABASS, who supply it with treated water.
All four term loan borrowers are already in technical default following their inability to maintain six months’ worth of reserves in a special account used to pay bondholders. The shortfall is understood to be some RM50 million, although this deficit could double in six months.
The technical default triggered a downgrade of the debt issuances by Malaysian Rating Corp Bhd (MARC) and RAM Ratings Services Bhd on September 8, who warned of further multiple-notch downgrades in this quarter. An industry source told The Malaysian Insider that bondholders suffered RM457 million in mark-to-market losses following the downgrade.
Syabas, Puncak Niaga (M) Sdn Bhd (PNSB), PNHB, RUN Holding SPV Bhd (RUNH), Splash, Viable Chip (M) Sdn Bhd (VCSB) and Titisan Modal (M) Sdn Bhd (TMSB) were downgraded by MARC while RAM cut ratings for Splash and Taliworks Corp Bhd subsidiaries, Destinasi Teguh Sdn Bhd and Sungai Harmoni Sdn Bhd.
In an interview with The Malaysian Insider, Chin, however, said PAAB will not be able to raise funds for the bond swap if Selangor Mentri Besar Tan Sri Khalid Ibrahim stands by his recent statement that state water assets were worth RM10.98 billion and not RM1 billion, as previously assessed.
“PAAB will never be able to afford that money because that money has to be raised from the bonds. And, if PAAB raised that bond, your tariffs in Selangor will rocket sky-high,” he said.
“There is no way, when you have to ask the bond market to raise money, to pay for this sort of huge sum of money unless Selangor government say [it] will bear the interest. Are they going to do it? You’ve got to think of all this. It’s not just a matter of, ‘I want this figure, full-stop’.”
The six-term Miri MP said PAAB was only willing to offer RM1.1 billion for the water assets, in line with a valuation done by the previous state government, and not RM10.98 billion derived through “so-called replacement principle of evaluation”.
“How can there be such a big difference? And our figure is not just plucked from the air. It’s from consultants. So how can be such a big difference?” he asked. “You’ve got to give a figure that’s a fair valuation of what Syabas equities [are worth] because... they have to take over Syabas equity. And so also the others.”
Chin said Khalid’s statement appeared to be an attempt to sabotage ongoing water consolidation talks between state and federal governments, and was pessimistic that a resolution could be achieved by end of next month.
“Now, of course, Selangor, to me, they have been very unreasonable to put down a figure of RM10.98 (billion) in terms of their assets value. That itself is already throwing a big spanner into the works. Who can afford that sort of money?” he asked.
“At the moment, it looks like the parties are very adamant to get what they want and each one is talking on figures that are just too high. There is no way.”
However, Chin denied he will use powers granted to him by the Water Services Industry Act (WSIA) 2006 to force water consolidation under terms favourable to the federal government, as some Selangor government officials have suggested.
Section 114(1) of the WSIA allows the minister to assume complete or partial control of concessionaires in the interest of the nation, and “shall not be challenged, appealed against, reviewed, quashed or questioned in any court”.
“How can you force? How can you nationalise companies? I mean, this sort of thing, we cannot do that. There is an agreement signed, and federal government is one of the signatories, so also Selangor government,” Chin said.
“That (section) is only when there are extreme situations. For example, [when] there is no water.”
He nonetheless urged Khalid to redouble his efforts to solve the water crisis, given the rapidly approaching deadline.
“I hope he will use his special effort, he will be able to use his persuasion or whatever to get the companies to see his line of approach. If he can persuade these companies to sell their lock, stock and barrel to him, that will be the best solution according to him. So, if that is the case, be my guest. He is welcome to do it. But do it at a fast pace, don’t just simply talk about it,” he said.
“If he has some concrete plans, I have not seen it yet,” he added.
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