Indebted Selangor water firms should ask to be bought, says Pua

By Boo Su-Lyn

November 20, 2010

PETALING JAYA, Nov 20 — Selangor water concessionaires faced with the prospect of debt service default from maturing bonds should be “begging” the state government to take over their assets, Selangor DAP leader Tony Pua said today.
Pua’s remarks were made at a water ceramah today as part of the Selangor government’s campaign against a potential bail-out of the state’s privatised water industry.
“The natural process is that these water concessionaires should be coming to us (the Selangor government) and begging us to take over their assets,” said the DAP national publicity secretary.
“If these companies fail to pay the bondholders, the bondholders have the right to take over the companies. Then the state government can talk to them and offer to take over their assets,” he added.

Selangor plans to submit a memorandum to the Yang di-Pertuan Agong on December 5 over the federal government’s possible multi-million ringgit bailout of Syarikat Bekalan Air Selangor (Syabas).
Sources told The Malaysian Insider recently that Selangor water bondholders will urge Prime Minister Datuk Seri Najib Razak to intervene directly in the state’s water restructuring deadlock in an effort to safeguard their bonds from being further downgraded.
The Malaysian Insider understands that major bondholders — including CIMB Principal Asset Management, Hong Leong Investment Bank and Great Eastern Life — have drafted a joint letter to Najib asking the federal government to bail out Syabas with a soft loan worth some RM1 billion.
“The only thing we can do is to protest the bailout,” said Pua.
The Petaling Jaya Utara MP also noted that it was uncertain if the federal government intended to simply issue a RM1 billion bailout, or if it also wanted to take over the water industry’s debts amounting to some RM6 billion.

“Whether they give RM1 billion or take over the entire RM6 billion, we don’t know,” said Pua.
“Puncak Niaga Sdn Bhd (PNSB)’s net debt is RM1.3 billion, Syabas’s is RM2.9 billion, Splash’s (Syarikat Pengeluaran Air Sungai Selangor Sdn Bhd) is RM1.6 billion and Konsortium ABASS is RM640 million. The total is RM6.4 billion,” added the lawmaker.
Selangor’s water players — Syabas, PNSB, Splash and Konsortium ABASS — are at risk of debt payment default as water bonds approach their maturity dates.
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.
Selangor water concessionaires are also already in technical default owing to the shortfall of money in the reserve account.
The Malaysian Insider understands that the reserve account, meant to hold at least six months’ worth of bond repayment money, is currently short by some RM50 million.
This shortfall may double in six months if the current water consolidation impasse remains unresolved.
Recently, analysts have warned that a default on the Selangor water bonds will have “very wide” market implications on the bond market, expected to finance at least 70 per cent of the Economic Transformation Programme (ETP) — particularly long-term, capital-intensive projects — through long-term issuances.
They have also said that the default, which may trigger a cross-default among other borrowings, could threaten the future of water industry privatisation.

Today, Klang MP Charles Santiago said that Selangor Mentri Besar Tan Sri Khalid Ibrahim has begun sourcing for experts to manage the state’s water industry in the event of a takeover.
“During the last five to six months, the mentri besar has started looking for a new alternative management...(who are) not only from Malaysia but also outside Malaysia,” said Santiago.
When asked about the number of signatures on Selangor’s planned memorandum to the Yang di-Pertuan Agong to date, Tricia Yeoh, research officer to the Mentri Besar, answered: “We haven’t taken stock of all the signatures yet.”

The state government is fighting for the rights over the water industry and promised to provide the first 20 cubic metres water for free and maintain 12 per cent increase in water tariff, compared to Syabas’ plans of a 25 per cent increase in 2012 and a 20 per cent increase in 2015.