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AFRICAN STOCK EXCHANGES ASSOCIATION (ASEA) CONFERENCE

vatisation: An Overview of the Malaysian Experience

8thAFRICAN STOCK EXCHANGES ASSOCIATION

(ASEA) CONFERENCE

AND NAIROBI STOCK EXCHANGE GOLDEN JUBILEECONFERENCE 23 to 26 November, 2004

Privatisation:

An Overview of the Malaysian

ExperienceMr Ooi Soo Nam,

Director, Corporate Finance

AmMerchant Bank Berhad

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Overview of PSP in Malaysia

Financing Privatised Projects

Way Forward - PPP

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Way Forward PPP


O i f PSP i M l i

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Developments

Commencement of the privatisation initiative in 1981

Officially took off as a Government Policy in 1983

Launch of the Privatisation Masterplan in February

1991

A total of 457 projects undertaken (up to Year 2000)

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Modalities

Modalities

Existingprojects

New

projects

Build-Operate-Transfer

Build-Operate

Build-Lease-Transfer

Build-Transfer

Outright Sale (assets/equity)

Lease of assets

MBO

Management contract

(contd)

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Privatisation Continuum

CommercialisationDivestiture/

PrivatisationCorporatisation

Government

Department

Self-accounting

Entity

State-owned

Corporation

Private-Sector

Company

(contd)

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Award of

Project by EPU

Award of

Project by EPU

Detailed Financial Analysis

Finetune parameters

Establish assumptions

Base Case projection

Scenario analysis Test key financial indicators

Structure financing framework

Assess concession requirements

Detailed Financial Analysis

Finetune parameters

Establish assumptions

Base Case projection

Scenario analysis

Test key financial indicators Structure financing framework

Assess concession requirements

Negotiation with the GovernmentNegotiation with the Government

Governments approvalGovernments approval

Design Financial Package Finetune funding requirements Prepare Information Memorandum Meet & negotiate with potential lenders/investors Evaluate funding terms Identify final project financiers Financial closing

Design Financial Package Finetune funding requirements Prepare Information Memorandum Meet & negotiate with potential lenders/investors Evaluate funding terms Identify final project financiers Financial closing

Secure FinanceSecure Finance

Main Technical

Analysis

Main Technical

Analysis

Feedback

Prepare & execute

legal documents-

Concession Agreement, etc.

Prepare & execute

legal documents-

Concession Agreement, etc.

IPC Listing ExerciseIPC Listing Exercise

ypical Privatisation Process

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Objectives of Privatisation Inject private sector efficiency, productivity and

technology into key areas of the economy

Facilitate economic growth through multipliereffects of the private sector spending

Relieve the financial and administrative burden ofthe Government

Reduce the size and presence of the public sector

in the economy reduce crowding out of privatesector and competition for funds

verv ew o n a ays a

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verv ew o n a ays a

Key Benefits

Accelerated infrastructure development in

the country with multiplier effects on theeconomy

Public sector resources channeled to moresocial needs

verv ew o n a ays a

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Privatisation Projects Undertaken

verv ew o n a ays a

Savings (USD bil) :

1.9 Annual operating expenditure

6.1 Proceeds from sale of government equity

34.8 Capital expenditure

107,000No. of employees transferred

119 New projects

338 Existing projects457Total privatised projects (1983 to 2000)

Page 5

verv ew o n a ays a

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verv ew o n a ays a

Landmark Privatisation Cases

Telekom Malaysia Berhad the national

telecommunications company Corporatised in October 1984

Privatised via listing in 1990

Tenaga Nasional Berhad the national electricity

company

Established in 1990 with the corporatisation of theNational Electricity Board

Listed on the stock exchange in May 1992

Metamorphosis of Government-owned entities

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andmark Privatisation Cases

North South Highway Project the first and largesttoll-road of 848 km

BOT involving upgrading of existing road and constructionof some 500 km (60% of the road)

Completed in 1994 at a total cost of USD1.6 bil

Now, 25 tolled road projects completed/approved with totaldistance of 1,856 km (Refer to Appendices I,II and III)

Independent Power Producers

First IPP was YTL Power Generation in 1993 with a 1,212MW plant (costing USD1 bil)

Now, 20 IPPs contribute about 35% of the overall powercapacity with more than 6,000 MW (Refer to Appendices IV and V)

Mega-infrastructure developments

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Way Forward PPP


nanc ng r va se ro ec s

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Early Experience

Key Characteristics of Infrastructure Projects

Huge up-front capital expenditure

Long gestation periods

Key Financing Issues

Mismatch of cashflows with financing requirements

- Relatively short tenure (around 10 years)

- Normally floating interest rates

- Credit limit constraints of banks

These are commonly faced by the early infrastructureprojects which are financed through normal debt funding.

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PROJECT COMPANYPROJECT COMPANY

Typical Privatisation Structure of an

Infrastructure Project

FINANCIERSFINANCIERS O&M

OPERATOR

O&M

OPERATOR

INDEPENDENT

CONSULTING

ENGINEERS

INDEPENDENT

CONSULTING

ENGINEERSINSURERS

INSURERS

GOVERNMENTGOVERNMENT

SHAREHOLDER 1SHAREHOLDER 1

SHAREHOLDER 2SHAREHOLDER 2

CONTRACTORS

& EQUIPMENT

SUPPLIERS

CONTRACTORS

& EQUIPMENT

SUPPLIERS

Shareholders Agreement

Concession Agreement/Incentives Etc.

Financing Agreement

InsuranceCoverage

Revenue

Collection

ConsultancyService Agreement

Operations & Maintenance Agreement

Construction/Procurement Contracts

END-USERSEND-USERS


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g j

Governments Role

Establish enabling legislation/regulatory frameworkto broaden and deepen the private sector funding

via the capital markets both equity and debt

Direct financial assistance through grants/ support

loans Nominate special entity to extend financing withlonger tenure and concessionary terms (e.g.

capitalised interests) Development andInfrastructure Bank


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g

ccess to the Debt Capital Markets

Development of the Bond Markets

The Government has been instrumental in developing the bond

market Established the National Bond Market Committee to set the

overall policy direction and rationalise the regulatory framework

Created a system of Principal Dealers Incorporate rating agencies Rating Agency Malaysia Berhad in

1990 and Malaysia Rating Corporation Berhad in 1995

Undertaken benchmarking issues Other policies/incentives e.g. income tax relief for certain

Islamic debt instruments, stamp duty exemptions for Asset-

backed Securities, one-stop regulatory body (with guidelines forPDS, ABS and Islamic instruments)


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Development of the Bond Market (Contd)

Grown tremendously with amount outstanding of

USD0.1 bil at end-1987 to USD81 bil at end-2003

In 2003, > USD25 bil of debt papers issued vs.

USD10.5 bil in 2002 PDS issuance (from private companies) is close to

USD11.3 bil an increase of 76% from 2002 at

USD6.5 bil


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g j


Key Advantages of PDS instruments vis--visConventional debts

Longer tenure ( up to 20 years)

Lower interest rates of comparable tenure

Fixed interest rates


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Major PDS Issues for Infrastructure Projects

597

(2 issues)

Utilities

- Power

Malakoff

581Utilities

-Power

Segeri Energy Venture

737

(2 issues)

Utilities

- Power

YTL Power

1,439Transportation

- Light Rail

Syarikat Prasarana Negara

Bhd

529 (Islamic)Infrastructure

- Highway

SILK

895 (lslamic)Utilities- Power

Kapar

1,466 (Islamic )Utilities- Power

SKS

Value (USD mil)IndustryIssuer


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Page 9

g j

Access to the Equity Capital Markets

Normal Listings on respective Sectors

Infrastructure Project Companies (IPC)


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ccess to the Equity Capital Markets

IPC listing guidelines introduced in 1995

leeway for direct listing of greenfield projects 8 companies listed under this route with total

market capitalisation of USD4.6 bil i.e. 2.6% ofthe total market capitalisation of USD177.1

billion (29/10/04)


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Tapping the equity Capital Markets Criteria for IPC

Listing Has a concession/licence from a government/ state

agency, in or outside Malaysia, (with at least 15

years remaining)

Project costs > USD131 mil

Contributes to the overall economic growth ofMalaysia


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Comparison with Other Listing Routes

Listing on the Main Board

Paid up capital of USD15.8 mil

Profit track record of USD7.9 mil with USD2.1 milin the latest financial year

Market Capitalisation Test

Paid up capital of at least USD65.8 mil

Profit of at least USD2.1 mil in the latest financial

year

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Currently, there are 8 IPCs listed

82317.4Utilities

- Water

Puncak Niaga

(Water Treatment Operator)

86303.7Infrastructure

- Highway

LITRAK

(Toll Road Operator)

-52.1Transportation

- Monorail

KL Infrastructure Group

( Monorail Operator )

37967.1Utilities

- Telecommunication

DIGI.Com

(Mobile Service Provider)

Top 100

Companies based

on Market

Capitalisation

Market

Capitalisation

(USD mil)

ActivityName

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Currently, there are 8 IPCs listed (contd)

172,176.5Utilities

- Power

YTL Power

(Independent Power Producer)

48572.8Utilities- Telecommunication

Time dotCom(Telecommunication Service

Provider)

-37.9Infrastructure

- Highway

Sunway Infrastructure


-168.9Utilities- Water

Ranhill Utilities(Water Treatment Operator)

Top 100Companies

based on Market

Capitalisation

MarketCapitalisation

(USDmil)

ActivityName

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Currently, there are 11 privatised companies among the Top 100 listedcompanies based on Market Capitalisation

46,539.2Transportation

- Shipping

MISC

(National Shipping Company)

39,279.6Utilities

- Power

Tenaga

(National Electricity

Generator/Distributor)

261,253.3Transportation

- Airlines

MAS

(National Airlines Operator)

103,381.6Infrastructure

- Highway

PLUS


210,212.3Utilities

- Telecommunications

Telekom

(National Telecommunications

Service Porvider)

Position

(as at 291004)

Market

Capitalisation

(USD mil)

ActivityName

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Currently, there are 11 privatised companies among the Top 100 listedcompanies based on Market Capitalisation (Contd)


- Bridge

UEM Builders

93279.7ServicesPos Malaysia

(National Postal Service

Operator)


- Ports

NCB

(Port Operator)


- Ports

Bintulu Port

(Port Operator)

58451.6Transportation

- Airlines

Malaysian Airport

(National Airports Operator)

201,554.4Utilities

- Power

Malakoff (IPPs)

Position

(as at 291004)

Market Capitalisation

(USD mil)

ActivityName


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Critical Success Factors

Strong Government Body/ Promoting Entity

The Economic Planning Unit of the Prime MinistersDept is the one-stop approving agency

Plans and monitors the privatisation programme

Coordinates the evaluation of proposals and thenegotiation process among the various government

agencies


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Critical Success Factors

Robust Legal, Regulatory and Contractual

Framework Proper project structure is critical

Key agreement is the concession agreement Enabling legislation may need to be

implemented Proper Risk Allocation

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Financing Privatised Projects Way Forward PPP

Way Forward PPP

ay Forward PPP

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Case Study

Water Privatisation

Based on a National Water Resources MasterPlan, development works of USD13.7 bil will be

required over a 50-year period (2000 2050)

Presently, water is under jurisdictions of the

respective States(13) in the country

Various modes of privatisation are in existence

ase u y ay orwar

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Case Study

Water Privatisation (contd)

Holistic approach ie. full scope of the water supply,

including source works treatment of raw water, distribution,

billings and collections.

- 3 cases where 2 namely PBA and Ranhill Utilities are listed

BOT of water treatment plants by private sectors ie.treatment of raw water and O&M of the treatment plants

- numerous cases where 3 namely Puncak Niaga, Intan

Utilities and Taliworks are listed Management contracts on the O&M of water treatment

plants 4 cases

ay orwar

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Case Study


Various States still facing NRW problems (30 40%)

Cashflow constraint/pressure arising from payment oftreatment water from BOT concessionaires

Existing tariffs are heavily subsidised and price

increase very sensitive to consumers

Shortage of raw water for treatment in more densely

populated States

ay orwar

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Case Study


Rethink on the approach - National/common water policy

One-stop agency National Water Commission

Uniform water supply rules and regulations

Adequacy of water resources interstate water transfer ofraw water

Transparency of the Pricing process

Mechanism to monitor and evaluate the performance of the

privatised entities

ay orwar

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Lessons Learnt

More transparent and pragmatic approach needed

Should the Project be privatised?

- Is it a priority Project? Is the Project privatisable on a fully commercial basis with

full pass through of costs?

- Is the proposed charges/tariffs affordable/acceptable?- Is the usage/traffic volume sufficient?

Is the Project Costs reasonable?

- Is the costs too high or too low?- Can the Project do without the features and yet providethe acceptable standard of service?

ay orwar

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Lessons Learnt

Proposed PPP Approach

Value for Money ie. best value and not thecheapest costs

Sharing of Risks/Profits

Project cashflows must be bankable

Acceptable Project Return to attract Investors

mMerchant Bank Berhad

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ontact Us

nd FloormBank Group Building

Jalan Raja Chulan200 Kuala Lumpur

alaysia

el: 603 2038 2633ax: 603 2070 8596

MALINA [email protected]

OI SOO NAM

[email protected]


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Brief Profile (Contd)

The largest investment bank in Malaysia with

shareholders funds of USD0.8 bil 100% owned by listed parent, AMMB Holdings Berhad

Only investment bank to have four full-fledged regional

offices in Penang, Johor Bahru, Kuching and KotaKinabalu

Provide breath of investment banking services -

corporate finance and advisory services, treasuryservices, debt capital market, corporate lending, loansyndication and funds management and unit trusts


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Brief Profile (Contd) Privatisation Experience

Part of consortium of Advisors involved in thePrivatisation Masterplan study

Advisor to the listing of Telekom, one of the earliest

Flagship privatisation candidate Advisor to the 1st IPC listing on the KLSE

Advisors and Arrangers to numerous BOT-types ofprivatisation projects

Overview of PSP in Malaysia Appendix I

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List of Privatised Toll Highway/Expressway Projects

29 yrs & 9 mths1996KESAS35Shah Alam Expressway8

29 yrs & 1 mths1996ELITE48North-South Exprassway Central

Link

9

32 years1996KLBK16.8Kulim-Butterworth Highway7

26 yrs & 8 mths1991METRAMAC16.5Kuala Lumpur City Roads615 years1987KAMUNTING5.3Jln Kuching-Kln Kepong Toll Road5

24 yrs & 8 mths1985PBSB13.5Penang Bridge4

25 years1984SHAPADU15.3North Klang Straits Bypass3

38 years1984MTD PRIME60Kuala Lumpur-Karak Highway2

42 years1982-1984PLUS848North-South Expressway1

Concession

Period

Opening

Date

Operator

Body

Length

(km)

HighwayNo

Overview of PSP in Malaysia Appendix II

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List of Privatised Toll Highway/Expressway Projects (Contd)

35 years1997SPDH22.7Seremban-Port Dickson Highway10

33 yearsU.C.KASEH48.5Kajang-Seremban Highway18

30 yearsU.C.LLB18.9Butterworth Outer Ring Highway19

33 years2001SPRINT26Western Kuala Lumpur TrafficDispersal Scheme17

33 yrs & 6 mths2004NPE19.6New Pantai Highway16

33 years2001PROLINTAS7.4Ampang Elevated Highway15

33 years1999LITRAK40Damansara-Puchong Highway14

30 years1999GRANDSAGA11.7Cheras-Kajang Highway13

32 years1999BESRAYA16Sungai Besi Highway12

30 years1998LINKEDUA45.7Malaysia-Singapore SecondCrossing

11

Concession

Period

Opening

Date

Operator BodyLength

(km)

HighwayNo

Overview of PSP in Malaysia Appendix III

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Page 8

List of Privatised Toll Highway/Expressway Projects (Contd)

33 yearsU.C.SILK37Kajang Traffic Dispersal Ring Road20

33 yearsU.C.GCE22.65Guthrie Corridor Expressway25

28 yearsU.C.GOVT.338East Coast Expressway24

-CeasedSILEX70Ipoh-Lumut Expressway23

35 yearsU.C.LATAR31Assam Jawa-Taman Rimba Templer

Expressway

22

33 yearsU.C.KLTY42Kuala Lumpur-KLIA DedicatedHighway

21

Concession

Period

Opening

Date

Operator BodyLength

(km)

HighwayNo

Overview of PSP in Malaysia Appendix IV

IPPs in Malaysia

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120 MWPowertron resources Sdn Bhd

210 MWSarawak Power Generation Sdn Bhd

720 MWPanglima Power Sdn Bhd

440 MWPowertek Bhd

720 MWGenting Sanyen Power Sdn Bhd1,303 MWSegari Energy Ventures Sdn Bhd

330 MWPahlawan Power Sdn Bhd

650 MWTeknologi Tenaga Perlis Consortium Sdn Bhd

440 MWPort Dickson Power Bhd

Gas-Fired

640 MWGB3 Sdn Bhd

350 MWPrai Power Sdn Bhd

1,212 MWYTL Power Gneration Sdn Bhd

CapacityIPPs

IPPs in Malaysia

Overview of PSP in Malaysia Appendix V

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90 MWSejingkat Power Corporation Sdn Bhd

20 MWMusteq Hydro Sdn Bhd

Mini hydro

2,100 MWSKS Power Sdn Bhd

36 MWSerudong Power Sdn Bhd

50 MWARL Tenaga Sdn Bhd

Diesel-fuelled

Coal-fired

32 MWSandakan Power Corporation Sdn Bhd

60 MWStratavest Sdn Bhd

2,420 MWKapar Energy Ventures Sdn Bhd

CapacityIPPs

PPs in Malaysia (Contd)

Ooi Soo Nam (1)

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