YTL Power will pay S$3.6 billion to Temasek and take on S$201 million of debt on PowerSerayaÆs books. PowerSeraya has both oil and gas generating facilities with a capacity of 3,240 megawatts.
The deal was done on a principal-to-principal negotiated basis between the parties. It follows only days after Temasek announced on November 25 that it was abandoning the tender process it had started in October for the sale of PowerSeraya given market conditions.
YTL Power is a power generation firm based in Malaysia which owns generating capacity in Malaysia and Indonesia, as well as stakes in utilities firms in the UK and Australia. PowerSeraya will be YTLÆs largest power asset.
Temasek announced a decision to exit ownership of the power generating sector in Singapore in mid-2007 although the mandate for the sell-down was awarded well before that in 2006 to Credit Suisse and Morgan Stanley. The Singapore-based investment firm maintained the divestment of the three gencos, which account for around 90% of SinagporeÆs power supply, was the next step towards liberalisation of the electricity market in the city-state.
The first two sales were conducted on the understanding that all three would be sold, say sources, as bidders wanted reassurance that it would be a level playing field between private sector owners in the generating sector. This led to some surprise when Temasek announced its decision not to exit PowerSeraya.
ôAfter we stopped the tender process last week, YTL Power put forward an unsolicited proposal which met our requirements,ö Temasek said in a written statement.
The option for a party to come to the table was always there, says a source, all Temasek did was abort the competitive tender.
PowerSeraya posted a profit of S$218 million on revenue of S$2.79 billion in the financial year ending March. Temasek has realised 11 times Ebitda for PowerSeraya, compared to 13 times for the first genco Tuas Power and 16 times for the second Senoko Power.
Tuas was won by China Huaneng Group in March at a price of S$4.24 billion, translating into an Ebitda multiple of 13 times. The sale of Senoko Power to a Marubeni-led consortium for S$3.97 billion was announced in September. Senoko Power is the largest power generation company in Singapore, with a capacity of 3,300 megawatts.
On a per megawatt basis, PowerSeraya has been sold at S$1.17 million per megawatt compared to Tuas which was sold at S$1.59 million per megawatt and Senoko which was sold at S$1.2 million per megawatt.
It is not only the falling price per megawatt which reflects the deteriorating markets. Temasek helped bidders in the Senoko and Seraya sale arrange sources of debt financing for the acquisition, as tighter credit markets proved to be the biggest potential stumbling block for both deals.
ôThis was not staple financing,ö suggests a source. ôTemasek just helped the bidder close financing by helping banks get comfortable with the assets being sold on a parallel track to the bidding process.ö Whatever the case, Singaporean bank DBS will provide $2.25 billion of credit to YTL Power to fund the acquisition.
Corporate advisory firm Lexicon Partners advised YTL. For the second year in a row, Malaysia has been an active market for investment banking revenues. Many firms dismissed last year's activity as being skewed by the one-off delisting of telecommmunications firm Maxis. But this year again the fees both from public market and private deals from the country has more than justified the time spent by banks that cover the country.
Singapore continues to be an active investment banking market even in the downturn. M&A revenues from Temasek alone have enriched a number of investment banks this year with Credit Suisse itself having advised on six deals for the firm. Even accounting for the fact that M&A bankers may not have received a very aggressive fee in this instance for generating a value creating idea (as the sale of the gencos was part of a Temasek plan to churn its assets) the fee on the S$12 billion Temasek realised from the three sales will add a healthy amount to the overall fee pool at Morgan Stanley and Credit Suisse. And the deals leave the two firms neck to neck in M&A league tables for announced transactions in Singapore.
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