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YTL may buy utilities overseas to boost profit by 20pc a year

   
Business Times Malaysia, 24 April 2004?

YTL Corp, the country’s biggest construction company, may buy utilities in Europe, Asia and Australia to ensure profit growth 6f 20 per cent a year until 2020, its managing director Tan Sri Francis Yeoh said.

YTL, with a RM6.2 billion war chest, expects interest rates to rise, forcing financially-troubled companies to sell assets more cheaply.

YTL, which bought Bath, UK-based Wessex Water plc for US$1bn billion (US$l = RM3.80) in 2002, may be interested in assets such as Edison International’s plants in Australia, Asia and Europe and National Grid Transco plc’s gas distribution units in England and Wales, Yeoh said.

“Right now, I would say it’s the wrong time to bid for utilities,” Yeoh said in an interview in Kuala Lumpur. “Within a calendar year from now, there will be a huge restructuring in the world economy. Interest rates are going to go up.”

YTL, with interests in power, water, properly, hotels, information technology, cement and construction, is seeking revenue from beyond Malaysia, where the population is about 25 million and demand for power is about a quarter of the UK’s.

Wessex contributed more than two-fifths of the group’s total sales in the year ended June 2003 and boosted YTL’s profit by 42 per cent to RM515.1 million.

YTL’s net profit growth for the year ending June 2004 will be more than 60 per cent, matching the growth in the first half of the fiscal year, Yeoh said.

“Average growth of 20 pet cent is highly commendable,” said Joe Wong, who manages the equivalent of about US$39 million at Easset Management Sdn Bhd in Kuala Lumpur. “I personally think he is doing the right thing. There’s no point buying anything with the potential of other currencies weakening.”

Australia’s central bank raised rates in November and December last year to slow home borrowing and consumer spending.

In the UK, the central bank increased its benchmark lending-rate twice in the previous five months.

The Australian dollar was the fourth-best performing currency in the past six months, gaining 5 per cent against the US dollar.

The pound rose 4.8 per cent, making it the fifth-best performer. The ringgit, which is pegged at 3.8 to the US dollar, has tracked the US dollar’s decline against major currencies.

YTL maybe moving too slowly for some investors. The stock’s 6.5 per cent gain this year has lagged the benchmark index’s 9.8 per cent increase.

“It is a conservative strategy and could be seen as moving too slowly from a shareholder point of view,” said Raymond Tang, who helps manage US$237 million in equities at CMS Dresdner Asset Management Sdn Bhd in Kuala Lumpur. “To win more investors, YTL would need to demonstrate that it can get contracts under a new open bidding system” which the Malaysian Government said it’s planning to implement.

In 2002, YTL unsuccessfully bid for the UK’s Midlands Electricity plc, then a unit of US utility group Aquila Inc, which owns and manages the network that carries power to about 2.3 million customers in England.

YTL Power also lost a government mandate to build a RM5 billion power plant, known as the Jimah Power project, in Negri Sembilan.

“People want a premium,” Yeoh said. “I’m patient, I’ve seen so many cycles since 1978.” – Bloomberg





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