YTLPOWER

The group has journeyed to faraway markets for opportunities, enabling it to expand its business to Britain , Australia and Indonesia . That also led it to broaden its business base to include water supply and sewerage services, and power transmission.

It had last made an acquisition many years ago, tending to acquire utility assets only from distressed sellers. Besides aiming to acquire good assets at relatively low prices, the group also has an excellent track record in managing organic growth of the businesses acquired.

Hence, starting from a business base of two power stations in Malaysia , it expanded that to include water and sewerage services in Britain from which it earns more profits than at its home base.

YTL Power last reported it held gross cash of over RM9bil that it could use to acquire more assets. It would seem obvious that it would make a major acquisition of a utility in this cycle of widespread distress. It has a large enough war chest for that, and it has waited many years for such times of desolation.

Besides its own internally-generated funds, it had wisely raised US$250mil through an exchangeable bond at a time when credit markets were easy and interest rates were lower. The cash from the bond issue is being held for investments in utility assets.

At this time of credit crunch, it will be difficult to obtain financing for acquisitions even when attractive utility assets are available. Hence, the fund raising ahead of a turn in the credit cycle was an act of foresight. Berkshire Hathaway Inc, managed by Warren Buffett, is also known to raise funds when terms are easy even when there are no immediate use of the funds.

YTL Power, which has fairly stable earnings from its utility businesses, offers a yield of over 6% and, including distribution of free treasury shares, the yield can be as high as 10%.

When the group makes its move, it can be anticipated that the acquired asset will not only be enhancing to its earnings but also a new base from which it can grow a new asset.

Its other overseas assets in utilities are Indonesia based PT Jawa Power, UK based Wesses Water and ElectraNet in Australia .

Meanwhile the cash-rich YTL group made its second major deal in Singapore in a six-week span, as it bought 100% of the island’s second largest independent power company.

YTL Power International Bhd entered into an agreement with Singapore ’s Temasek Holdings Ltd to buy PowerSeraya Ltd for S$3.8bil, which included S$200mil in debt.

Singapore’s largest bank, DBS Bank Ltd, partially funded the deal by providing YTL Corp Bhd a S$2.25bil loan.

YTL Power is a 52.8% subsidiary of YTL Corp.

The 3,100 MW (megawatts) of licensed capacity operated by PowerSeraya will give them significant participation in the Singapore energy market. The attraction of PowerSeraya lay in its strong position in the energy market and multi-utility businesses.

The acquisition is expected to be completed by end-February 2009.

Its participation in the Singapore electricity market would put it in a prime position to contribute towards the liberalisation of the Malaysian electricity market, currently under study by the Malaysian Government.

PowerSeraya, which is also involved in oil trading, is the third and last of the three power generating companies (gencos) that Temasek put up for sale under its planned divestment of the gencos.

It has a licensed capacity of 3,100 MW, representing 25% of Singapore ’s total licensed generation capacity.

YTL Power was an established industry player with a strong track record in power investments and Temasek was confident YTL Power’s expertise and experience would add significant value to Singapore ’s electricity market and PowerSeraya in particular.

Singapore operates a liberalised electricity market, Asia ’s first such market.

Electricity generated from gencos is sold into the Singapore Electricity Pool, a competitive wholesale market operated and administered by Energy Market Co Pte Ltd.

Electricity is sold to retail customers by retail energy suppliers, of which Seraya Energy Pte Ltd, a 100% subsidiary of PowerSeraya, is the leading power supplier with 18% total market share in 2007.

Malaysia
-> 100% Paka Power Plant, Terengganu 808MW
-> 100% Pasir gudang Power Plant, Johor 404MW
Indonesia
-> 35% Jawa Power 1220MW
Australia
-> 33.5% Electranet (Transmission service provider)
Singapore
-> 100% PowerSeraya Ltd 3100MW

In addition, the Singapore government-owned investment firm Temasek Holdings Pte Ltd has shortlisted around five companies from preliminary bidding for its sale of Senoko Power Ltd.

France's GDF Suez, Japan's Marubeni Corp, India's Tata Power Co Ltd, YTL Power Bhd, and the OneEnergy Ltd tie-up between Hong Kong's CLP Holdings and Japan's Mitsubishi Corp are the shortlisted bidders, bankers told Reuters Basis Point, in a deal that market players have said could fetch about US$3 billion (RM10 billion).

Other firms that were understood to have submitted last week non-binding expressions of interest included Bahrain investment bank Arcapita Inc, Singapore 's Keppel Corp and Sembcorp Industries Ltd.

The shortlisted candidates will be allowed to conduct due diligence around next month (Sept 2008).