Reports: Forced water deal will shake investors' confidence

Residents in Selangor hope the water restructuring will improve the situation. — Picture by Malay Mail
Residents in Selangor hope the water restructuring will improve the situation. — Picture by Malay Mail

PETALING JAYA, April 9 — A win-win solution can be reached between the Selangor state government and the water concessionaires in the state without the need to invoke Section 114 of the Water Services and Industries Act (Wasia) 2006.

Financial firms are with the opinion that as the commencement date of the act is still unknown, it may pose an impact to investors’ confidence.

While Section 114 allows the Federal government to step in and take over the operations of the water companies in Selangor citing “national interest”, this however contradicts article 13(2) of the

Federal Constitution that states: “no law shall provide for the compulsory acquisition or use of property without adequate compensation.”

The firms raised their concerns of the invocation of the act as it would likely shatter investor confidence in current and future infrastructure investments in the country.

They also believe there is no need to invoke the act as a “willing buyer, willing seller” deal can still be reached as legal disputes over forcefully assuming control over the water assets may delay water restructuring.

A report by Credit Suisse said the likelihood of higher funding cost for future projects as a result of breaking the sanctity of concession contracts could be one of the factors that may prompt the

Federal government to intervene and lead to a fair valuation for the water concessionaires.

“A fair deal could be reached as budgeted funds are so far adequate to achieve amicable resolution.

“We believe that weakened water stock prices over the recent weeks due to fears over Wasia would lead the Federal government to seek a 'willing buyer, willing seller' resolution,” it said.

Deutsche Bank in a report stated that the move to invoke the act would prolong the water deadlock as water concessionaires were likely to challenge the move in court.

“Any force acquisition of assets is unprecedented and undermines the sanctity of contract.

“The impact would create unnecessary jitters in the capital markets,” it said.

CIMB senior analyst Shahrizan Rosely suggested the approach to solve the water deadlock should be by respecting the sanctity of contracts by the Federal government through fair play, instead of a demonstration via a draconian law.

“As had been practiced in previous restructuring exercises in six other states, the Federal government should commit to a 'willing buyer-willing seller' basis in order to preserve contract integrity and investor confidence in Malaysia,” he said. 

Shahrizan said the combined RM3.9 billion funds should be fairly allocated by the Federal (RM2 billion) and Selangor (RM1.9 billion) government to all the water concessionaires and that the allocation of funds should be on book value basis.

He said in the event a force take over happens, it will signal a negative perception to investors as the country has regulated assets involving bond holders and capital markets.

“The value of the capital debt market in Malaysia is in the tune of RM2.33 trillion and involves both foreign and local investors,” he said.

Previously, Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim said Wasia was used in the restructuring of the water industry in Johor, Penang, Malacca and Negri Sembilan with satisfactory outcomes.

But the difference is, the water restructuring schemes in the other states did not involve the invocation of Section 114 and with no divestment loses to the water companies.

In addition, the water restructuring schemes in the said six states were carried out via an asset and liability transfer agreement, where the Federal government bought over based on book value of the water companies on “willing-buyer, willing-seller” basis.

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