Thursday, June 21, 2007

Power Ranger.....

Power Sector ...

Over in Singapore, Temasek Holdings said it would sell its three power stations, Power Seraya, Senoko Power and Tuas Power, from September 2007 with completion targeted for the end of next year or early 2009.

This signals yet another attempt by the Government of Singapore to dispose the three power plants. Following the liberalization process for the energy market started in 1995, the government in 2000 said that it was lifting foreign ownership limit to sell the power generation companies which account for about three quarter of electricity produced in the island state. But weak market sentiment and disputes over gas supplies saw the divestment repeatedly postponed.

Temasek claimed that the conditions are more conducive now. Singapore's economy is set for continued growth and recent legislative changes have set the stage for liberalization. Moreover, the power plants, we believe, have undergone significant improvements to boost their efficiency levels.

The changes in ownership are not expected to affect electricity selling prices. Under a system put in place (purportedly a power pooling system) SP Services buys electricity from all generating companies before selling to households and industrial consumers. SP Services also has an automated pricing mechanism in place to pass-on any fluctuation in energy costs. There would also not be any changes in management and staff for another three years under the collective agreements signed recently.

Each power plants is said to be worth S$2bn-S$3bn. The sale may be by way of tender or via initial public offers but Temasek said the first power plant would likely be offered through a tender process. Temasek's financial advisors are Morgan Stanley and Credit Suisse.

Temasek did not say who are the interested parties. But previous attempts to sell the power assets attracted foreign parties like Intergen (US) and Tokyo Electric Power Company (Japan). Tenaga Nasional and YTL Power were also interested to bid for them at one time. Singapore-based interested parties include Keppel Corp and SembCorp Industries (which have their own power plants) and CitySpring Infrastructure Trust (Temasek-linked).

Trade Idea: maintaining Buy recommendations for Tenaga and YTL Power for their earnings growth and steady dividend prospects. At this juncture, it is expect the offer to cause a hollowing out on utilities investment in Malaysia. With the three power plants already operating at high efficiency levels and limited growth potentials, ROI is likely to be the main driver behind most bidders. That aside, the news flow could provide some mild excitement to the sector.

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