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Good time for YTL to buy cut-price assets

The Edge Malaysia, October 20, 2008 By Lim Shie-Lynn

When markets tumble, most corporations take cover and keep away from investments. But not the YTL group of companies, which has a reputation for being contrarian in times of financial crisis.

Acquiring cut-price assets has become a sig­nature of the YTL group, which is controlled by the Yeoh family. When the tech bubble burst in 2000, for instance, YTL ventured into the trans­mission business. It purchased a 33 % stake in ElectraNet, which operates the South Australian transmission network, via YTL Power In­ternational Bhd. YTL Corp Bhd holds a 52.8% stake in YTL Power.

As the global financial crisis extends its reach from Iceland to New Zealand and Asian markets, it is business as usual for the conglomerate driven by Tan Sri Francis Yeoh. A war chest of close to RM11 billion should put YTL Corp in a position to shop around.

 

"With economies worldwide tumbling into uncertainty and liquidity problems afflicting fi­nancial markets, this is a good time for YTL to step in and buy assets. It would not be a problem for cash-rich YTL Corp," says a fund manager.

 

Overseas appeal

The political uncertainties that continue to cloud the domestic business landscape have spurred the YTL group to seek property development projects in Singapore. Defying the unfolding crisis in global markets, YTL recently launched the sale of its 18 upmarket homes on Sandy Is­land in Sentosa Cove.

 

The property sale launch came after YTL's third successful bid last year for the en bloc purchase of 50 high-end residential units of the Westwood apartments located on Singapore's Orchard Boulevard for RM1 billion.

 

YTL Corp won its maiden bid in the republic via the Lakefront Collection bid worth US$100 million in September 2006. In March last year, YTL and its partner, LP World Sdn Bhd, made a successful bid for Sandy Island, a man-made island project in Sentosa Cove, for US$89.7 mil­lion. The bid came with an approval to devel­op 19 bungalows.

 

The utilities arm of the YTL group also looked to the republic to acquire another regulated as­set for an earnings boost. While YTL Power lost the bid for Senoko Power, one of three power generation plants held by Singapore's sover­eign wealth fund Temasek, analysts opine that the oldest independent power producer in the country has sufficient cash, amounting to RM9 billion, to bid for regulated assets worldwide. A consortium led by Japanese firm Marubeni won the bid for Senoko Power.

 

YTL Power's other overseas assets in utilities are Indonesia-based PT Jawa Power, UK-based Wessex Water and ElectraNet in Australia. The 2002 acquisition of Wessex Water marked the group's foray into Europe and involvement in water assets. Judging from its success, the group could see more opportunities on the Eu­ropean continent, having adapted to the Euro­pean utility regulation processes.

 

It is, however, unlikely for YTL to acquire more water assets in the UK due to foreign own­ership regulations in the country. On the local front, the YTL group's bid as part of a consortium that includes UEM World and other parties for a section of the RM10 bil­lion Pahang-Selangor interstate water transfer project seems to have stalled. There has been no further progress on the deal following the March 8 general election this year, which saw a change in government in Selangor.

 

The water-transfer project signed by Pahang Menteri Besar Datuk Seri Adnan Yaakob and former Selangor Menteri Besar Datuk Seri Dr Mohamad Khir Toyo, would channel raw wa­ter to Selangor, which is expected to face sup­ply problems by 2015.

 

Prudent management, defensive stock

Although both the shares of YTL Corp and YTL Power have shed more than 20% since the be­ginning of the year, analysts opine that YTL Pow­er is the more defensive stock. This could also be due to the fact that both YTL Corp and YTL Power have engaged in active share buyback programmes, which help to limit the downside to their stocks.

 

A check with Bursa Malaysia showed that YTL Power had acquired 582,300 shares for RM1.74 to RM1.76 apiece between Oct 9 and 10. The buybacks amounted to RM1.03 million. AmResearch, in a recent note, maintained a "buy" call on YTL Power as it offers attractive yields of 10 %, which includes treasury share distributions. "The group, which has substan­tial cash, is on the prowl for new acquisitions due to the opportunities presented by the glo­bal liquidity crisis," it says.

 

The continuing drop in the ringgit has worked in favour of YTL Power, says AmRe­search, as a weakening ringgit translates to higher earnings recognition from Wessex Wa­ter. "The foreign loans have a natural hedge against YTL Power's overseas operations," the research firm adds. Shares of YTL Power closed three sen lower at RM1.71 last Thursday, while YTL Corp was 10 sen lower at RM5.85.