Kuala Lumpur, 24 April 2004
YTL, Malaysia’s biggest builder, is sitting on RM6.2 billion ($1.64 billion) in cash and fixed deposits and able to buy as much as RM60 billion in power, water or other assets.
Yeoh believes he’ll be able to get better prices for utilities in the UK and Australia in the next year, when their currencies decline against the US dollar, and as interest rates rise, forcing financially troubled companies to sell assets cheap.
During Malaysia’s last recession in 1998, YTL paid RM323 million cash to buy the JW Marriott Hotel and two shopping malls in Kuala Lumpur from troubled property developer Taiping Consolidated Bhd., three months after Taiping obtained court protection from creditors in July. The purchase price was RM11.6 million cheaper than an assessment by independent valuer Azmi & Co.
When interest rates go up again, YTL would make more from its deposits even if borrowing costs rise for others, said Yeoh. “ We are in an era of the loosest monetary policies globally. The low interest rate regime cannot go on forever. Interest rates got to rise soon. It is not a sin to keep cash now. If there’s interest rate increase of 2 percent, it’s RM120 million to our bottom line. But also, 2 percent rise means a lot of companies are going to collapse, then the opportunities like Wessex will come again.”
YTL’s net profit will grow an average 20 percent a year until 2020.
We’ve gone global, we are no longer hostage to local or regional economic trends,” said Yeoh, who has been managing director at the company founded by his father for the last 16 years. “We have reached a level that growth has to be both organic and through mergers and acquisitions. We have the experience, we have the capital, to do both.”
YTL, which owns Malaysia’s third biggest power producer, plans to invest in water, power and other utility assets in the UK, Australia as well as Malaysia to drive growth. While Malaysia’s growing economy will offer opportunities as demand grows, the more mature economies in Europe are reorganizing the way their utilities are financed and owned, Yeoh said.
The company’s last major overseas investment was in Wessex Water, which it bought for $1.77 billion in cash and debt. 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. Apart from Wessex, the company also owns 33.5 percent of ElectraNet Pty Ltd., South Australia’s power transmission business.???????????????????????????????????
While Yeoh would consider bidding for 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, he’s not “enthusiastically hunting.” “Of course any assets that are available, I’m there. We will consider anything at the right price,” said Yeoh. “I would never chase something at the wrong cycle and the wrong price.”??
When the group’s unit YTL Power International Bhd. bought Wessex, it was at an exchange rate of about $1.50 per British pound. Since then the dollar has weakened to more than $1.80 per pound, giving YTL an asset appreciation gain of as much as 40 percent and a boost to its earnings, said Yeoh. The reverse could happen if he bought assets now, he said.
Any bid YTL makes for assets right now prices in a discount, in case the US dollar recovers, said Yeoh. At the prices YTL has been offering, “they think I’m ridiculous and unrealistic. I think I’m very realistic,” Yeoh said.
In 1978 Yeoh graduated with his honors degree in engineering and joined the business his father, Yeoh Tiong Lay, founded in 1955 to build camps for British army garrisons fighting a communist insurgency. He convinced his father to list the company in 1986, selling a stake to the country’s armed forces pension fund board to meet the government’s requirement that all publicly traded companies be part-owned by ethnic Malays.
In the 1990s, YTL became the country’s first non-state power producer after a nationwide blackout prompted the government to seek additional power reserves. It financed its power plants in the local currency, while many Asian companies were getting short-term foreign loans for long-term projects. That helped YTL survive the Asian financial crisis in 1997 when others collapsed under debt.???
YTL’s cement, property and construction units will do well as the Malaysian economy grows at a faster pace, boosting consumer spending, said Yeoh. He also sees opportunities in the country’s water and sewage industry. “In the water and sewage services I think there is an equivalent of a blackout. A lot of things need to be fixed in that area, it needs to be restructured with a better regulatory framework, and then there’ll be opportunities,” said Yeoh. “The consumers who are also fervent voters in this country expects a lot from (Prime Minister) Abdullah Badawi’s new administration to deliver world class services, especially in mundane things like water and sewage at very competitive prices, and we should be able to do that with all the experience we have. There are of course others in this country that can compete effectively under this new framework, if introduced.”
Yeoh reckons Malaysia’s water and sewage services can be improved without raising prices more than 10 percent over the next 10 years. “I’m a practitioner, we can offer solutions, so why not? I mean, give everybody a run for their money. If we are welcomed to play a role and to be openly competitive we’ll compete.”?
YTL’s information technology unit may also work with Hong Kong, Chinese and British partners to offer narrow cast content in China, the UK and elsewhere, he said.
The company’s net profit growth for the year ending June 2004 will be more than 60 percent, matching the growth in the first half of the fiscal year, Yeoh said. YTL will keep paying dividends and buying back shares to reward its investors, he added. “Our generous dividends is a way of life now. We are going to pay out more and more from our stable revenues than to raise more equity,” said Yeoh. YTL’s shareholders have “given me discretion” to buy back shares. “So far the buying program has been good and effective.”