Pouncing on deals to power up for the future

 

Snatching Singapore's second biggest power producer PowerSeraya for S$3.8 billion reinforces YTL's streak in buying good assets in bad times

FOR a company with a reputation for pouncing on deals, it was always a question of when, and not if, for the YTL group.

Its shareholders must have also been aching for a big deal because it has been a while since the last big one. While having a lot of cash is admired for a company, it also exerts pressure on management because having RM11 billion is no good if the money is not put to work.

In other words, in a good deal, that money could earn a company a lot more than the interest from a fixed-deposit account.

Snatching Singapore's second biggest power producer for an enterprise value (the company value together with its debt) of S$3.8 billion (about RM9 billion) addresses this concern.

It also reinforces YTL's streak in buying good assets in bad times.

In 2000 when the tech bubble burst, it bought a transmission service provider in Australia. When Enron went bust, it took advantage of the situation and bought Wessex Water, a water company in the UK, from the US power company in 2002.

The PowerSeraya deal is also important for YTL because the bulk of its generation capacity now, around 1,212 megawatts (MW) that reside in two Malaysian plants, ends their long-term contracts around 2015.

The new capacity in Singapore would come in handy if its existing contracts are not extended. As to the prospects of PowerSeraya, Aseambankers made a good point about the upcoming casino projects in the republic. These two mammoth projects alone would need a lot of juice.

Having PowerSeraya would also help YTL prepare to compete in the future of Malaysia's power industry. Similar to the UK, Singapore's electricity market has been opened up for more competition.

This means that YTL will have access to the expertise and knowledge of how to operate in a liberalised electricity market.