YTLPOwer oh YTLPower

This one sipeh a lot of news. But horrrrrrrrrr, price like a HARD ROCK, can not move.

YTL Corp may privatise YTL Power

Business & Markets 2012

Written by Max Koh of theedgemalaysia.com

Thursday, 27 December 2012 09:36

KUALA LUMPUR: Recent moves by cash-rich YTL Power International  Bhd (YTL Power) to reduce its dividend payout to match that of its parent YTL Corp Bhd may signal the likelihood of the former being taken private by the latter via a share swap. The share swap is the same route taken by YTL Corp when it delisted another subsidiary, YTL CEMENT BHD [], earlier this year. YTL Corp earlier faced some criticisms from YTL Cement minorities who were swapping for YTL Corp shares, which carred lower dividend payouts, while no cash option or offer premium were provided. “With YTL Corp guiding for an annual dividend per share of 4 sen, net dividend yields of YTL Corp and YTL Power are now almost at parity at 2%. Assuming a swap ratio of one time, there would not be a significant reduction in dividend yields for YTL Power shareholders swapping for YTL Corp shares,” said Maybank IB Research. YTL Corp had publicly stated that it was looking to privatise its public listed subsidiaries, which include YTL Power (51.4%-owned) , YTL Land and Development Bhd, YTL E-SOLUTIONS BHD [] and Starhill REIT. “We believe that YTL Power is the next most likely target as it is the biggest contributor to YTL Corp’s earnings. A privatisation will allow the Yeoh family to gain direct access to YTL Power’s earnings and cashflow,” said an analyst from a local research firm. “Based on YTL Power’s current market valuation of RM11.1 billion, YTL Corp would need a lot of financial muscle to take it private although the share price has fallen 15% year-to-date. As such, it is unlikely for YTL Corp to make a cash offer,” he added. He opined the Yeoh family is waiting for the right time to make the offer so their holdings in YTL Corp would not be diluted. “YTL Corp’s share price has come off a bit recently. From a share-point perspective, the Yeoh family would want to wait for YTL Corp’s share price to reach a certain level so it does not have to issue too many shares to YTL Power minorities,” he said. According to its annual report, YTL Corp holds a 51.25% stake in YTL Power. The Yeoh family also holds an additional 4.05% stake in addition to their indirect 51.25% stake held via YTL Corp. The only other substantial shareholder of YTL Power is the Employees Provident Fund, with a 9.4% stake. YTL Corp’s consolidation plans are seen as a move for its substantial shareholders to unlock value in their business empire. Apart from YTL Corp, tycoon Tan Sri Quek Leng Chan is also privatising its Hong Kong-listed Guoco Group Ltd for HK$88 (RM35) per share. While the offer price was at a 25% premium to market price then, it was still at a discount to its net asset value. Analysts see it as a good move as Gouco Group is cash-rich and the stock had been trading at a steep discount. Similarly, analysts say YTL Power is a prime privatisation target as it is cash-rich and  is a major contributor to YTL Corp’s earnings. As at Sept 30, YTL Power held RM10 billion in cash and deposits while borrowings stood at RM23.2 billion. For fiscal year 2012 ended June 30, YTL Power contributed about 60% to YTL Corp’s profit-before-tax. While it is uncertain when the privatisation offer would be made, Maybank IB said YTL Power offers a cheaper route into YTL Corp. “We believe a premium would be offered for YTL Power, which in the event of a share swap, would imply a discounted entry into YTL Corp,” it said. At current dividend ratios, Maybank IB said the privatisation exercise could raise YTL Corp’s dividend income by RM133 million. “Assuming this incremental income is paid out in entirety, YTL Corp’s annual dividends could total RM559 million,” it said, adding that YTL Corp could raise dividend payout after privatisation. However, another analyst said a share swap might not necessarily benefit YTL Power minorities. “It depends on the share premium that is offered. Note that the offer price for YTL Cement’s privatisation was at a 1% discount to the closing price then. As such, it is possible that the offer price for YTL Power will be a discount as well,” he said. For the financial year ended June 30, 2012, YTL Power’s net profit was lower at RM1.23 billion from RM1.36 billion a year earlier.  Revenue, however, rose to RM15.87 billion from RM14.66 billion previously. YTL Corp’s shares fell 9% in the last six months to close at RM1.85 yesterday. YTL Power’s shares also fell 17% from a six month-high of RM1.84 on July 20 to RM1.51. This article first appeared in The Edge Financial Daily, on Dec 27, 2012.

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