KUCHING: YTL Power International Bhd’s (YTLP) proposed acquisition of Hyflux’s Tuaspring 396MW CCGT power plant could bump up the company’s power capacity share in Singapore to 19.6 per cent from 15.6 per cent, currently, analysts observed.
On Bursa Malaysia, YTLP announced its proposed acquisition of the power plant and associated assets of Tuaspring Pte Ltd by YTL Powerseraya Pte Ltd, a wholly owned subsidiary of YTLP. The proposed acquisition entails acquiring Tuaspring for a total purchase consideration of S$331.45 million or circa RM1.004 billion.
The acquisition involves the plant and its associated assets as well as a land lease of the site with a 20-year remaining term. The purchase will be settled by S$230 million (RM697 million) cash, S$101.5 million (RM308 million) via shares and loan notes amounting to a 7.5 per cent stake in the post-acquisition entity in YTL Utilities (which is the holding company of Power Seraya). The 7.5 per cent stake comes with a put option exercisable within three years enabling the seller of the assets (Maybank) to require YTLP to repurchase the 7.5 per cent stake at S$40 million (RM121 million). The Tuaspring acquisition is conditional upon approval of the EMA (Energy Market Authority) and PUB (Public Utilities Board of Singapore) and is expected to be finalised by end-2Q20.
“Singapore power has been dragged by overcapacity since 2015, but the purchase triggers a much needed consolidation in the sector. Combined with Power Seraya (3100MW), YTLP would end up with a 19.6 per cent capacity share from 15.6 per cent currently, overtaking Senoko Energy as the second largest player (from third) in the Singapore generation sector,” the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out.
Furthermore, it highlighted at RM1 billion consideration, the acquisition values the Tuaspring power plant at just RM2.5 million per MW which is considerably cheap relative to estimated replacement cost of RM3 million to RM4 million per MW for a typical CCGT plant.
“Given that the assets have been placed under receivership, the Tuapsring plant is no longer tied to any previous takeor- pay LNG purchase contracts, which gives YTLP much better flexibility in output management. The plant was originally commissioned in 2016 at a capex of more than
S$1 billion, inclusive of the water desalination plant (which is not part of YTLP’s purchase),” it added.
As for the impact on its balance sheet, MIDF Research believed that the acquisition has minimal impact on YTLP’s balance sheet.
“The cash portion of the purchase consideration of RM690 million represents nine per cent of YTLP’s gross cash as at end-Dec19, and based on this, is estimated to raise net gearing marginally to 1.7-folds from 1.66-folds.
“Back in FY17, Tuaspring integrated Water and Power Plant registered a net loss of S$82 million (losses mainly from the power plant given weak electricity market).
“Coupled with an expected slowdown in the Singapore economy now, we think in the immediate term, the drag for the Singapore power sector will likely remain. In the mid-term nonetheless, consolidation of the sector should translate into improved pricing power for the gencos.
“EMA is projecting peak demand to grow by a CAGR of 1.5 to 2.1 per cent over the next decade (2020-2030) relative to a seven to four per cent contraction in supply capacity in 2020 and 2021. Reserve margins are projected to reduce from 33 per cent in 2020 to 21 per cent by 2023,” it said.
All in, MIDF Research raised its rating on YTLP to ‘buy’ from ‘neutral’.