PETALING JAYA: The potential acquisition of Genting Bhd’s power assets by 1Malaysia Development Bhd (1MDB) in a deal reported to be worth up to RM3.5bil is seen by research analysts as a positive development for the Genting group.
They pointed out that such a deal, if materialised, would see Genting getting a fair offer for its power assets and a good opportunity to expand its gaming operations.
A local daily had reported recently that 1MDB was looking to buy Genting Sanyen Power Sdn Bhd, which is the power division of Genting.
This would represent 1MDB’s second major power asset acquisition this year, after it had done a sensational RM8.5bil deal in March to acquire the power assets of Tanjong Energy Holdings Sdn Bhd from tycoon T. Ananda Krishnan.
The purchase had made 1MDB the second largest independent power producer (IPP) in the country after Malakoff Bhd.
Back then, 1MDB managing director and chief executive Officer Datuk Shahrol Azral Ibrahim Halmi had told StarBizWeek, “As a matter of principle, I believe the Government will make sure that whatever new-generation power purchase agreement is signed (with IPPs) will be based on a competitive and commercial basis.”
On its website, 1MDB stated that the purchase of Tanjong Energy was part of its strategy to contribute to increasing the competitiveness of the power generation space.
Meanwhile, an industry source told StarBizWeek that a possible reason for the alleged deal was to achieve 1MDB’s obejctive of securing strategic resources such as a stable supply of energy for the country.
Wholly owned by the Government, 1MDB has stated that its mission is to lead market-driven initiatives to help transform Malaysia into a high-income economy.
1MDB has identified energy, real estate, tourism and agribusiness as sectors for the creation of new sources of growth.
“Demand for energy is growing fast. Such an acquistion, if it is true, would also be financially viable as it is a quality asset,” said the source.
Hong Leong Investment Bank’s (HLIB) research unit opined that such a potential deal between 1MDB and Genting was “likely to go through, as it is part of the Government’s plan to take over the country’s first-generation IPPs and subsequently aid Tenaga Nasional Bhd (TNB) from continuing to bleed financially.”
For its financial year ended Aug 31, 2011 (FY11), TNB had incurred higher IPP purchases amounting to RM14.2bil, which was an increase of 13.4% compared with RM12.53bil recorded in FY10. This also consisted 45% of TNB’s operating expenses of RM31.58bil in FY11.
HLIB Research said the reported price of RM3bil to RM3.5bil for Genting Sanyen was 1.8 to 2 times higher than its ascribed value for the power unit (based on US$0.94 enterprise value per mega watt (EV/MW) with 20% discount).
The research unit noted that although the potential sale was contrary to Genting’s expansion plan under the power division, it will eliminate uncertainties about the power purchase agreement (PPA) re-negotiation with the Government.
HLIB Research also pointed out that if the deal materialised, Genting could have total net cash of more than RM9bil.
“With such a huge cash, the group can continue to acquire more power plants regionally and expand its gaming operations, or distribute its excess cash to shareholders in terms of special dividend. Should the group distribute the RM3bil to RM3.5bil proceeds, shareholders could receive cash dividends of 81 to 94 sen per share.”
Kenanga Research said the potential deal was a surprise, given that Genting Sanyen won the bid last month to build a US$1bil (RM3.12bil) greenfield 660MW coal-fired power plant in Indonesia.
Kenanga Research noted that in addition to its Malaysian asset, Genting also has two other power assets in India and four others in China.
“Judging from the price tag, we believe the deal, if it materialises, would involve all power assets except the upcoming Indonesia IPP.”
Affin Investment Bank’s research unit said the reported price tag was fair at six to seven times EBITDA (earnings before interest, taxes, depreciation and amortisation), as it estimated 1MDB’s purchase of Tanjong Energy had worked out at eight times EBITDA.
“If this is true, we believe this is an opportunistic exit for Genting Sanyen with its PPA expiring in three year’s time,” said Affin Research.
Genting’s stock dipped 5 sen to RM8.97 yesterday.
Meanwhile, Genting Singapore PLC posted a 32% drop year-on-year in net profit to S$165.5mil, while revenue was 3% lower to S$702.2mil for the second quarter ended June 30.
Genting Singapore, which is a 52%-owned unit of Genting Bhd, said revenue for second quarter was affected by the marginally lower casino business volume, and there was also an increase in expenses for the Marine Life Park which incurred pre-opening operating costs without corresponding revenue generation.
