Huaneng buys Tuas Power for $3 billion

Temasek sells its Tuas Power asset to China Huaneng at a price that exceeds analysts' expectations.
China Huaneng Group, a power producer in China, has emerged the winner in an auction of Temasek-owned Tuas Power with a bid of S$4.235 billion ($3.01 billion).

Tuas Power has been sold at a firm value of S$4.3 billion, including S$70 million of net debt on its books. This is the largest acquisition of a Singapore company since 2001, the largest-ever divestment by Temasek and the largest-ever acquisition by a Chinese power company, specialists say.

The deal will be executed by SinoSing, a wholly owned subsidiary of China Huaneng. China Huaneng currently owns 71,000 megawatts (MW) of installed generation capacity. Its subsidiary, Huaneng Power International, is listed on the NYSE as well as on the Hong Kong and Shanghai exchanges.

Temasek announced on October 18 last year that it would sell three Singapore power generation companies: PowerSeraya (with a generation capacity of 3,100MW), Senoko Power (3,300MW) and Tuas Power (2,670MW). Temasek articulated a plan to exit the assets, saying it had worked ôclosely with the regulators and government authorities over the years to ensure an orderly transition to a stable and competitive power generation marketö.

Tuas Power, the smallest of the three and the one that was put up for sale first, was built in 1995. Credit Suisse and Morgan Stanley are advising Temasek on the sale of all three power companies.

Analysts had estimated the three plants would collectively fetch around $4 billion. The sale of Tuas Power at $3 billion suggests that the actual realisation could far exceed these estimates.

Tuas Power's assets include 1,200MW of oil-fired steam turbine plants and 1,470MW of gas-fired combined cycle plants. Tuas sells the power it generates to the National Electricity Market of Singapore. It accounted for approximately 26% of Singapore's electricity generation in 2006.

For the year ended March 31, 2007, Tuas Power had revenues of S$2.28 billion on which it earned a net profit of S$177 million. The acquisition price translates into an Ebitda multiple of 13 times and a revenue multiple of 4.3 times.

SinoSing was the winning bidder after a closely contested auction, say sources close to the deal. The winner was selected based primarily on price, but other factors such as terms of closing, commercial terms and strength of the financing package were also taken into consideration.

The aggressive price reflects the potential that bidders see in SingaporeÆs power market, say specialists.

ôThis transaction represents a major step for China Huaneng in its goal to diversify its assets across geographies and technologies,ö says Huang Long, vice-president of China Huaneng, in a written statement. Lehman Brothers was the adviser to Huaneng.

Others reported to have been interested in Tuas at different stages are Macquarie (Australia), Marubeni (Japan), Hong Kong Electric Holdings, Tanjong (Malaysia), and Reliance Energy and GMR Infrastructure of India. However, analysts had speculated that the credit crunch and prevailing uncertainties on financing could have prevented some of the interested parties from submitting final bids.

The deal is in an advanced stage of completion and is expected to be fully closed by March 24. Sources close to the transaction say the second sale will be launched in the second quarter of 2008.
¬ Haymarket Media Limited. All rights reserved.
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