Published December 4, 2008

NEWS ANALYSIS
How YTL breathed life into dead deal

By RONNIE LIM
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(SINGAPORE) It boiled down to a good game plan. With its rival pulling out and the two-horse race called off, Malaysia's YTL Group decided to still dash towards the finish line instead of risking a tougher race in better times.

That's essentially how YTL managed to land Singapore's second largest generating company, the 3,100- megawatt PowerSeraya, for $3.8 billion this week, even though Temasek Holdings had earlier decided to put the sale on hold.

The prized Singapore plant will be YTL's single largest power business within its growing international stable.

BT understands that point men Francis Yeoh, managing director of YTL Power, and Yeoh Seok Hong, its CEO, capped two days of successful negotiations here, which started on Monday, with top Temasek Holdings brass, with a celebration dinner on Tuesday night.

Tuesday was coincidentally the day when Temasek originally wanted bidders to submit their final, binding offers.

As it turned out, Temasek, a week earlier on Nov 25, called off the PowerSeraya sale 'in the light of market conditions' - a statement that observers read as indicating 'lower than acceptable' bids.



The market talk is that the rival group (led by Hong Kong's CLP and including Japanese trader Itochu and Thailand Electricity Generating Public Company) in fact withdrew its bid 'a day or two before the close of the sale', sources said. That apparently triggered Temasek's move to call off the sale.

However, YTL - which was still very much interested in this third and last genco being divested by Temasek - decided to press on and (as the market now assumes) raised its earlier offer to clinch Power- Seraya.

The fact that Temasek's director of investment Gwendel Tung said late Tuesday that YTL had 'put forward an unsolicited proposal which met our requirements', without mentioning any further discussion with other bidders, clearly suggests that the CLP consortium was out of the picture altogether.

'CLP's seemed a hastily- put-together group, with partners which may not have been too familiar with each other, and the deteriorating economic conditions probably caused one or more to pull out,' one industry observer said.

On Temasek's abrupt turnaround to sell the genco, less than a week after calling off the sale, industry sources say that given the financial crisis, it was a choice 'between the devil and the deep blue sea' - closing the sale now, given a willing buyer, or postponing it indefinitely till the storm clouds pass.

The latter would have led to negative perceptions, including by the now foreign-owned Senoko Power and Tuas Power about a still Temasek-run Power- Seraya in the electricity market here.

Market sources feel that the $3.8 billion paid by YTL for PowerSeraya is 'reasonable, given the worsening financial circumstances'.

All the three big gencos have about comparable asset values, with the 2,670 MW Tuas Power the smallest but with the newest plant, the first to go and fetching $4.235 billion from China Huaneng in March.

Next was the 3,300 MW Senoko Power, the biggest but with the oldest plant, which went to Japanese/ French Lion Power for $4 billion in September, and on which Lion is now spending a further $750 million to 'repower' some older units.

PowerSeraya's 'multi- utility' strategy also sits well with YTL. The latter is getting a Singapore genco which has already embarked on an $800 million investment in 1,550 MW worth of cogeneration units that produce steam and cooling water, as well as electricity, to sell to petrochemical plants on Jurong Island.

PowerSeraya also has a $20 million desalination plant and is considering building a second.

Apart from being the gem in YTL's growing international stable of power/ water assets including in the UK, the Singapore genco will give YTL an understanding of the liberalised electricity market here, and 'will put it in a prime position to contribute to liberalisation of the Malaysian electricity market, currently under study by the Malaysian government', said YTL.

While one criticism of YTL is that it may not bring any new technology to the table, 'at the end of the day, it's the cost of fuel which gives an advantage', one official here said. And if YTL, which currently gets Malaysian gas, can persuade Petronas to sell it more gas, this can be easily piped to its Singapore genco.

With the genco divestment completed, the market will be watching how the power game here will eventually play out.