Having sold two of its utilities to foreigners, Temasek should consider IPO for Power Seraya:
Conrad Raj, Today Online 15 Sep 08;
The sale of our power stations to foreigners seems to some as the divestment of good assets to purchase, what appears for now at least, more risky investments.
With the recent announcement that Temasek Holdings has agreed to sell the second of its three power companies, Senoko Power, to a consortium led by Japan’s Marubeni Corp for just under$4 billion, the Singapore investment company is now left with only one other major electricity producer, PowerSeraya.
According to Temasek, PowerSeraya too will be disposed off by the end of next year. Temasek had earlier sold Tuas Power to China Huaneng Group for about $4.2 billion.
On the other side of the coin, Temasek together with the Government of Singapore Investment Corp (GIC) have, in the last 12 months or so, sunk billions into buying stakes in banks like Barclays, Merrill Lynch, Citigroup and UBS. Although the value of these investments has fallen sharply since their purchase, we have been told there is no cause for alarm as these are long-term investments, some with a time horizon of 30 or so years.
There’s nothing wrong with selling our assets to foreigners. We have also been buying foreign assets throughout the world, sometimes to the chagrin of the host country.
But what concerns many of us is the feeling that good money is being thrown after bad.
In the case of the power stations, why are we selling these, not only valuable but strategic, assets to foreign investors when there are several companies here like Keppel Corp and SembCorp Industries willing to run them? These two companies were among the bidders for the two power generators, but obviously their bids were not high enough. Should price be the main criterion for strategic assets?
In fact why sell them in the first place? After all, the power stations were making good money.
For instance, Tuas Power, which was established in 1995, owns businesses in electricity generation, trading and retail services as well as the development and provision of multi-utilities and related services.
Its power generating capacity totals 2,670 megawatts, or 25 per cent of the Singapore market. For the financial year ended 31 March 2007, Tuas Power, which has net debts of $71 million, reported revenues of $2.27 billion and Ebitda (earnings before interest, tax, depreciation and amortisation) of $331 million. Net profit before tax rose to $218.7 million from $130 million the year before, and it had a healthy ROE (return on equity) of 16.5 per cent.
Senoko, with a combined installed capacity of 3,300 MW, is the country’s largest power generator, providing 30 per cent of its needs. For the financial year ended March 31, 2008, it reported revenues of $2.49 billion, an EBITDA of $245 million and net income of $130 million.
Starting out in 1971 and with an installed capacity of 3,100 MW, Power Seraya has an even better story to tell. For the year ended March 31, 2008, it posted revenues of $2.8 billion, after-tax net profits of $218 million, which was 30 per cent higher than the previous year’s $168 million, and an ROE of 19 per cent. It also reported an economic value added of $103 million and had compounded annual growth rate of 20 per cent over the last five years.
Perhaps the Government feels that the future of our electricity producers is dim and therefore hiving them off to foreigners at a good profit now would protect Singaporeans from any future downside.
Others suggest that selling off the power providers is a way out for the Government from having to explain to the public high tariffs, like at present when fuel is so expensive. It would be harder also for the Government than the private sector to explain away profits from the sale of a necessity.
But why did the Government decide not to take the three companies public by issuing shares that the man in the street could have subscribed to? Or insist on buyers issuing a portion of the companies to the investing public after a certain number of years?
Perhaps it’s not too late to do a public offering of PowerSeraya?
