WIDAD Group Bhd, which is in the midst of expanding its businesses through acquisitions of concessionaires, plans to issue up to RM2 billion Islamic medium-term notes (IMTNs), says group managing director Datuk Mohd Rizal Mohd Jaafar.
Rizal tells The Edge that the proceeds from the IMTNs will be used to fund more acquisitions of long-term, cash-generating businesses, similar to Widad’s proposed acquisitions of Serendah Heights Sdn Bhd and Innovatif Mewah Sdn Bhd.
“If you look at our cash balance, it is sufficient to support whatever projects that we have at the moment. But if we want to expand, of course we’ll have to raise funds. That’s why we plan to issue up to RM2 billion IMTNs ... because we plan to expand,” he says in an interview.
On Nov 27, Widad announced that it had entered into a heads of agreement (HoA) with the shareholders of Innovatif Mewah to acquire their entire stake in the company for RM122 million cash.
The shareholders of Innovatif Mewah are Menang Development (M) Sdn Bhd, Menang Industries (M) Sdn Bhd — subsidiaries of Menang Corp Bhd — and Tentu Selesa Sdn Bhd. Pursuant to the HoA, both parties will endeavour to negotiate and finalise all terms for the acquisition within 120 days.
Innovatif Mewah holds the concession to build, lease, manage and transfer (BLMT) the Universiti Teknologi Mara campus in Seremban 3, Negeri Sembilan. It has a remaining concession period of 14 years, ending in January 2034.
In October, Widad also entered into an HoA with the shareholders of Serendah Heights Sdn Bhd to acquire a 90% stake in the company for RM95.89 million. Serendah Heights holds the BLMT concession for UiTM Jasin, with a remaining tenure of 14 years.
According to the announcements, the remaining tenure for Innovatif Mewah will generate RM838 million of future cash flow for Widad while the concession held by Serendah Heights will bring in RM861.6 million.
Apart from the IMTNs, Rizal says, Widad is also looking at raising funds via the issuance of equities. However, the company has not determined whether to only utilise the existing general allocation of 10% of its share base or to raise more than that. Widad has the option of share placement or rights issue.
Asked if he is concerned that the expansion plans will raise Widad’s gearing level, Rizal says a net gearing of 0.5 to 0.7 times is still comfortable for the group. Widad’s net gearing was 0.35 times as at Sept 30, 2019.
“Furthermore, we will be backed by strong cash flow, so there is no concern about gearing. We will manage the balance between equity and debt issuance to ensure that our gearing is at a level that will not pose a problem,” he says.
Rizal cites these acquisitions as Widad’s third strategic pillar for future growth — which is to acquire businesses that provide long-term returns.
“These concession businesses are lucrative. We are still looking for similar types of concessions — it could be for hospitals, universities or even sewage treatment plants,” Rizal says, adding that Innovatif Mewah and Serendah Heights could potentially provide Widad with double-digit profit margins before tax every year from the lease payments alone.
This does not include maintenance contracts, which could provide Widad with more businesses.
The first strategic pillar is the normal tender submission or bidding while the second leverages Widad Business Group’s (WBG) businesses to fuel Widad’s future growth. WBG has well-diversified businesses, not only in construction and integrated facility management (IFM) services but also in information technology, through its 58.6% stake in Dataprep Holdings Bhd.
“There are a few projects from WBG that we can leverage, such as construction of universities, hospitals, hotels and infrastructure. For example, the group may secure some projects, say, a property development. That definitely requires construction and facility management to a certain extent, depending on the scope,” says Rizal.
“Once they secure the projects, they will engage us to construct the buildings or facilities, or to manage the assets.”
In April, Widad was awarded a contract to construct a 200-bed multidisciplinary private hospital in Puchong, Selangor, by Wardah Communications Sdn Bhd, a subsidiary of WBG, for RM190.5 million.
Rizal says Widad currently has an order book of about RM900 million, of which RM220 million is for its IFM contract for Istana Negara. The contract will run until 2022.
Its subsidiary, Widad Builders Sdn Bhd, has also been awarded a contract to design and build a solid waste transfer station in Kepong by Bumi Segar Indah Sdn Bhd. The contract value is slightly more than RM120 million.
Rizal expects Widad to win more contracts from WBG in the future as the group takes on bigger and more complex projects. This apparently is also the expectation of the market.
WBG came under the spotlight in October after it announced that it had submitted a proposal to the prime minister and the works and economic affairs ministries to acquire 51% equity interest in PLUS Expressways Bhd held by Khazanah Nasional Bhd for RM1.5 billion, or the entire stake for RM3 billion.
The group later revised its offer to RM5.3 billion for all the shares in PLUS. Apart from the cash proposal, WBG also proposed to waive the RM3 billion compensation that the government has to pay PLUS for abolishing certain tolls and freezing toll rate hikes, if its offer is accepted.
In total, WBG’s offer for PLUS is RM8.3 billion, valuing the country’s largest expressway operator at RM38.3 billion enterprise value, including debt.
This offer has fuelled Widad’s stock, doubling its value to 56.5 sen as at last Thursday from a low of 22 sen in early September. Widad is now trading at a trailing four-quarter price-to-earnings ratio of more than 60 times.
On parent WBG’s bid for PLUS, Rizal says there are synergies between the group and the expressway operator. “We have done road maintenance and roadworks, and at the same time, within the group, we have Dataprep. This company has a tie-up with Sky Soar (Shenzhen) Technology Co Ltd, which provides IT solutions for toll operators.
“The company provides artificial intelligence (AI) solutions for traffic and toll management. So, there is a synergy between all these companies and PLUS.”
Sky Soar’s AI solutions for traffic and toll management are currently used for an expressway connecting Shenzhen and Guangzhou in China, he adds.
https://www.theedgemarkets.com/article/widad-plans-rm2b-imtns-fund-expansion
