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Strategy of timely, selective purchases

   
Tan Sri Francis Yeoh

The Star Online, June 2, 2004

WITH the purchase of a strategic stake in Indonesia’s second largest power plant, YTL Power International Bhd has done it again. The company, with utility assets in Malaysia, Britain and Australia, has now also emerged in Indonesia as it snaps up a 35% stake in an independent power producer, PT Jawa Power, for RM529.7mil. StarBiz assistant news editor JAGDEV SINGH SIDHU interviewed YTL Power managing director Tan Sri Francis Yeoh to find out more about the acquisition and what's in store next.?

StarBiz: How did the deal for Jawa Power come about and why is YTL Power going into Indonesia??

Yeoh: Our strategy is to invest in regulated assets globally and things are looking quite good now for the whole of South-East Asia. We are very interested in investing in Singapore's power plants but Singapore has not come out with a programme to sell them. ?

We understand this region better. We, too, would like to be aggressive when we see opportunities and we are starting to see that.?

StarBiz: When you went into Wessex Water, you stated your preference for regulated assets in regulated markets, and it would appear that Indonesia does not really qualify as one. ?

Yeoh: In this case, we inherited a regulated asset in the form of a power purchase agreement. There were several tariff adjustments and right now Indonesia is in the cycle of wanting much, much more power. So it is a different cycle.?

StarBiz: By investing in Indonesia, does that mean the group is willing to take on a little bit more risk??

Yeoh: The risk is always there in any developing country. At a certain time in history, you ride with whatever risk you invest in. And that time has come.?

StarBiz: What does Jawa Power do for YTL Corp and YTL Power??

Yeoh: It adds to our profit. Today, 60% of YTL's turnover and 50% of its profit are global and that will increase. For Malaysia, we will wait for opportunities. Each South-East Asian economy will go through cycles and all with need strong infrastructure at competitive prices.?

StarBiz: Does YTL have the intention to do one big deal every year or so??

Yeoh: We want to grow 20% compounded till 2020. On an average compounded basis, I am sure we can get there. On a year-to-year basis, there are two ways YTL Corp can grow. One is organically and that cycle is looking good now for properties and construction. What is good is that YTL is no longer hostage to domestic, regional or global economic cycles. ?

I have been much criticised for keeping a lot of cash. Part of it is people think I do not know what to do with the cash when actually, we have to wait for opportunities in regulated assets to come.?

StarBiz: Are you reluctant to overpay for utilities and will you have to in order to get Asian assets??

Yeoh: Today, most governments and technocrats in South-East Asia are realistic. I think they realise nobody wants to overpay and if that is the case, then opportunities do arise. Then it is a matter of the entry price.?

With this beachhead in Indonesia, we want to look at all the other sectors that are available.?

StarBiz: Does that mean you won't just concentrate on utilities??

Yeoh: We are in infrastructure and in many areas. Some Singaporean investors are courting us to invest in a monorail. We will have a look at it but it is early days. As far as utilities in Thailand, Indonesia or Singapore are concerned, we've always had an eye on them.?

StarBiz: You mentioned you want to look for opportunities in infrastructure in South-East Asia. How much effort is being put into that and are there any other areas outside of infrastructure that you would be looking at??

Yeoh: In South-East Asia, our effort is consistent. People understand that we are long-term players. There is a whole plethora of investment bankers actually telling us of such opportunities. It is very efficient for me when the best of the brains with their balance sheet wants to back YTL. ?

StarBiz: Is it accurate to say that you are concentrating more on Asia but will not neglect opportunities that may arise in Europe and Australia??

Yeoh: No. I would say that there are a lot of opportunities in Britain. Britain is a place I will not take my eyes off.?

StarBiz: What is the progress of your bid for the Edison International assets??

Yeoh: I would just like to say that the bid for Transco is something we are very serious about. I think we will have a good crack at it. If it is available in the second half (of the year), I think we stand a reasonable chance with all the intellectual capital and experience that we have. We stand as good a chance as anybody else in winning some of these assets.?

StarBiz: You have made a comment that you will not overpay for such assets. With economic conditions improving, will that be a problem in terms of not overpaying for assets??

Yeoh: When you buy regulated assets, you are in there for the long term. What determines your rate of returns is the price of entry. So far, we have not overpaid. We have to wait for a benign cycle. I think that when interest rates rise, there will be a lot more opportunities for YTL.?

First, we have a lot of cash. A one or two percentage point increase in interest rates will help our bottom line. A two percentage point rise in interest rates for the Western economies can be disastrous. I am quite sure most of the people holding these assets will want to sell. People will become more realistic with interest rates rising.?

In that context, there will be a lot of opportunities for regulated assets by the end of the year. And we are ready. We have a lot of deals on the table from investment banks. It is a nice position to be in.??

YTLPOWR :? [Stock Watch]? [News]





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