THE BUZZ
Malaysia Airports Holdings Berhad (MAHB) through its joint venture company in the Republic of Maldives, GMR Male International Airport Pte Ltd (GMIAL) – the concession holder of the Ibrahim Nasir Airport – has received a letter dated 27 Nov 2012 issued by the Ministry of Finance and Treasury of Republic of Maldives (MoFT) notifying that the concession agreement dated 28 June 2010 for the rehabilitation, expansion, modernization, operation and maintenance of the Ibrahim Nasir airport concession is “void ab initio” (terminated) due to several purported grounds. MoFT also notified that the Maldives Airport Co Ltd together with MoFT will take over possession and control of the airport and all facilities which were subject of the Agreement within seven days from the date of the said letter.
To recap, GMIAL is a joint venture company set up by the consortium of GMR Group from India and MAHB after the consortium was declared the winning bidder in an open tender privatization exercise organized by International Finance Corp, a World Bank group, on behalf of the Government of the Republic of Maldives. MAHB holds a 23% stake in GMIAL. As to date, MAHB has invested a total equity of USD6.9m (equivalent to RM21.5m) and has accounted for an accumulated share of associate profits of approximately USD13.2m (equivalent to RM41.2 million).
OUR TAKE
Banging it hard. The actions by the Maldives government to terminate the contract, a project awarded by the island nation‟s previous regime to the consortium – majority-owned by India‟s GMR Group – has exacerbated the already strained relations with neighbouring India, which warned it would "take all necessary measures to ensure the safety and security of its interests and its nationals in the Maldives. GMR has also said “This unlawful and premature notice on the pretext that the concession agreement is „void‟ is completely devoid of any locus standi, and is, therefore, being challenged by the company before the competent forums.” We understand that one main reason that the new government decided to take over the Male airport was due to the USD25 airport development fee, which GMR insists was built into the contract.
Worst case scenario. Although the airport consortium still intends to maintain its concession of the Male airport, in the worst case should the takeover by the Male government happen, MAHB will recoup its investment costs from the compensation made by the government plus a possible penalty fee.
Impact to earnings. Should the worst case scenario happen, impact to earnings would be a drop in associate contributions from Male of RM30m per annum at an inputted annual growth rate of 5%. This would see earnings for FY13 and FY14 drop by 6% and 4% respectively. On a DCF valuation perspective, there will not be any change given that associate earnings do not impact cashflow and we have not factored in any potential dividend contribution from Male Airport.
Maintain BUY. It is premature to make any changes to our forecast now. We maintain our RM8.00 DCF target price. We continue to like MAHB‟s outlook and its KLIA2 story which would give boost to earnings from FY14 onwards.
Malaysia Airports Holdings Berhad (MAHB) through its joint venture company in the Republic of Maldives, GMR Male International Airport Pte Ltd (GMIAL) – the concession holder of the Ibrahim Nasir Airport – has received a letter dated 27 Nov 2012 issued by the Ministry of Finance and Treasury of Republic of Maldives (MoFT) notifying that the concession agreement dated 28 June 2010 for the rehabilitation, expansion, modernization, operation and maintenance of the Ibrahim Nasir airport concession is “void ab initio” (terminated) due to several purported grounds. MoFT also notified that the Maldives Airport Co Ltd together with MoFT will take over possession and control of the airport and all facilities which were subject of the Agreement within seven days from the date of the said letter.
To recap, GMIAL is a joint venture company set up by the consortium of GMR Group from India and MAHB after the consortium was declared the winning bidder in an open tender privatization exercise organized by International Finance Corp, a World Bank group, on behalf of the Government of the Republic of Maldives. MAHB holds a 23% stake in GMIAL. As to date, MAHB has invested a total equity of USD6.9m (equivalent to RM21.5m) and has accounted for an accumulated share of associate profits of approximately USD13.2m (equivalent to RM41.2 million).
OUR TAKE
Banging it hard. The actions by the Maldives government to terminate the contract, a project awarded by the island nation‟s previous regime to the consortium – majority-owned by India‟s GMR Group – has exacerbated the already strained relations with neighbouring India, which warned it would "take all necessary measures to ensure the safety and security of its interests and its nationals in the Maldives. GMR has also said “This unlawful and premature notice on the pretext that the concession agreement is „void‟ is completely devoid of any locus standi, and is, therefore, being challenged by the company before the competent forums.” We understand that one main reason that the new government decided to take over the Male airport was due to the USD25 airport development fee, which GMR insists was built into the contract.
Worst case scenario. Although the airport consortium still intends to maintain its concession of the Male airport, in the worst case should the takeover by the Male government happen, MAHB will recoup its investment costs from the compensation made by the government plus a possible penalty fee.
Impact to earnings. Should the worst case scenario happen, impact to earnings would be a drop in associate contributions from Male of RM30m per annum at an inputted annual growth rate of 5%. This would see earnings for FY13 and FY14 drop by 6% and 4% respectively. On a DCF valuation perspective, there will not be any change given that associate earnings do not impact cashflow and we have not factored in any potential dividend contribution from Male Airport.
Maintain BUY. It is premature to make any changes to our forecast now. We maintain our RM8.00 DCF target price. We continue to like MAHB‟s outlook and its KLIA2 story which would give boost to earnings from FY14 onwards.
Source: OSK
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