Published December 4, 2008

YTL deal shows cash-rich KL firms' potential

But weary market dulls share response to acquisition of PowerSeraya

By S JAYASANKARAN
IN KUALA LUMPUR
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SHARES in Malaysian infrastructure company YTL Corporation and its power company YTL Power International showed hardly any vigour yesterday in the wake of the latter's $3.8 billion acquisition of Singapore's second-biggest power producer.

The tepid response may suggest that it will take a lot to enthuse a market wearied by the financial turmoil that's roiled equities from Tokyo to Teheran. Even so, analysts generally agree that the acquisition is good for YTL Corp as the Singapore asset was not overpriced and will add a new profit stream from next year.

YTL Power ended yesterday's trading at RM1.86 (78 Singapore cents), down seven sen. YTL Corp ended the day unchanged at RM6.75.

On Tuesday, YTL Power bought PowerSeraya. The Singapore generator posted profits of $168 million and $218 million for FY2007 and FY2008 respectively, indicating a considerable bottomline boost for YTL.

The acquisition illustrates the potential that cash-rich Malaysian conglomerates such as YTL, Hong Leong Group and Ananda Krishnan's Usaha Tegas have for buying assets in mature markets that have lost value.

YTL group's tycoon owner Francis Yeoh has made buying distressed assets something of a science since the Asian financial crisis in 1998 when he snapped up sharply devalued hotels and property in downtown Kuala Lumpur.



He later shifted his focus to buying regulated assets in mature markets with low risks. For example, the internal rate of return on PowerSeraya is estimated at 8-9 per cent, versus 13-14 per cent for power plants in Malaysia.

YTL, which has water, property and power businesses from Asia to Europe, recently talked about its 'war chest' of RM11 billion and said that it is looking to buy as asset values decline. Last month, it agreed to pay $285 million for control of Macquarie Prime Reit, the owner of stakes in Singapore shopping malls Wisma Atria and Ngee Ann City.

Mr Yeoh said that he has been assessing businesses in the property, power-generation and water sectors, particularly in Singapore where rents are falling, and in the UK and Australia where currencies have weakened.

Other overseas assets owned by YTL group include 33.5 per cent of ElectraNet, which owns and operates the power transmission network in South Australia. It also owns Wessex Water, which treats water in parts of England and was bought at distressed prices from troubled US firm Enron in 2002. YTL also has a 35 per cent interest in Indonesia's Jawa Power, the only asset it holds in an emerging economy apart from Malaysia.