S$331.5M TUASPRING DEAL A ‘SHOCKER’

Acquisition unlikely to be earnings accretive in near term for YTL Power, say analysts

ANALYSTS are bearish on YTL Power International Bhd’s proposed acquisition of a 396MW combined cycle power plant and its associated assets in Singapore due to the excess generating capacity in the republic.

YTL Power on Thursday announced that it was buying the Tuaspring Pte Ltd power plant and associated assets for around S$331.5 million.

The acquisition will be funded via S$230 million cash and S$101.5 million in new share issuances and loan notes, which amounts to 7.54 per cent of the post-acquisition equity in wholly-owned YTL Utilities, the immediate holding company of YTL PowerSeraya Pte Ltd.

RHB Research said while there could be long-term potentials from the proposed Tuaspring acquisition that could lead to a bigger power generation market share, it might not be earnings accretive in the near term.

This is because YTL PowerSeraya remains in the red in the oversupplied electricity market.

“We understand this acquisition will enable YTL Power to consolidate with YTL PowerSeraya’s 3,100MW power generation capacity in Singapore.

“However, excess generating capacity continues to plague the republic’s power market and we do not expect the market to recover over the next two years,” said the firm yesterday.

“In view of the difficult business environment for the power sector in Singapore, this acquisition is unlikely to have positive earnings impact to YTL Power. Worse still, it may drag earnings lower should Tuaspring be unable to turn around in the near term.”

As such, the rationale of this acquisition could likely be for long-term benefit, Kenanga Research added.

Meanwhile, Hong Leong Bank Bhd is relatively positive on the acquisition.

It said YTL Power would be able to improve its power asset quality in Singapore with potential synergy and business consolidation for a larger market share and cost savings over the longer term.

The acquisition price of S$331.5 million without any liability encumbrance for the 396MW combined cycle gas turbine (CCGT) power plant was relatively cheap compared to YTL Power’s acquisition cost of S$3.8 billion, or total asset value of RM11.4 billion (based on financial year 2019), for its 3,100MW licensed capacity, which included 1,540MW CCGT and 1,500MW oil-fired thermal, said Hong Leong.

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396MW Power generation capacity of the Tuaspring combined cycle power plant