Genting Bhd/Genting Sanyen

1MALAYSIA Development Bhd (1MDB) is buying another power asset for as much as RM3.5 billion, its second in five months after a RM8.5 billion acquisition of Tanjong Plc’s power business.

 

Sources said the government-owned firm is paying between RM3 billion and RM3.5 billion for Genting Sanyen from the Genting Group. The deal is reaching its final stage and will be announced soon. This is part of 1MDB’s business plan which has identified power as one of its core businesses as well as ensure the long-term power security of the country.

Genting Sanyen is the power arm of conglomerate Genting Group and is one of the country’s five independent power producers (IPPs).

Another source said the acquisition is part of the government’s plan to take over some of the country’s first-generation IPPs whose concessions are due to expire by 2015 and 2016.

 

The potential acquisition of Genting Bhd's power assets by 1Malaysia Development Bhd (1MDB) in a deal reported to be worth up to RM3.5bil is seen as a positive development for the Genting group. Such a deal, if materialised, would see Genting getting a fair offer for its power assets and a good opportunity to expand its gaming operations.

 

Market observers opined that such a potential deal between 1MDB and Genting was “likely to go through, as it is part of the Government's plan to take over the country's first-generation IPPs and subsequently aid Tenaga Nasional Bhd (TNB) from continuing to bleed financially.”

 

Although the potential sale was contrary to Genting's expansion plan under the power division, it will eliminate uncertainties about the power purchase agreement (PPA) re-negotiation with the Government.

 

If the deal materialised, Genting could have total net cash of more than RM9bil. With such a huge cash, the group can continue to acquire more power plants regionally and expand its gaming operations, or distribute its excess cash to shareholders in terms of special dividend. Should the group distribute the RM3bil to RM3.5bil proceeds, shareholders could receive cash dividends of 81 to 94 sen per share.

 

However some were surprised about the deal given that Genting Sanyen won the bid in July 2012 to build a US$1bil (RM3.12bil) greenfield 660MW coal-fired power plant in Indonesia .

 

In addition to its Malaysian asset, Genting also has two other power assets in India and four others in China .

 

If the deal materialises, would involve all power assets except the upcoming Indonesia IPP.