26th March 2008

Business Times - 26 Mar 2008

No rush to sell other 2 gencos: sources

Huaneng completes Tuas Power deal while Temasek weighs its options

By RONNIE LIM

(SINGAPORE) After completing the sale of Tuas Power to China Huaneng Group for $4.2 billion on Monday, Temasek Holdings is likely to take a breather before selling Singapore's other two big generating companies. Some sources suggest that this could be due to the global credit crunch.

The sale of Tuas Power means that Singapore consumers are now getting electricity from a 100 per cent-owned Chinese power station.

Huaneng, China's biggest power producer, said in a brief statement that it had completed the Tuas Power transaction - for a previously reported $4.235 billion cash - and now wholly owns the genco.

A Temasek spokesman said yesterday that there is no firm time-line on the sale of the other two generating companies - Power Seraya and Senoko Power. Nor is there any official word on which will be sold first.

Tuas Power, PowerSeraya and Senoko Power together account for more than 80 per cent of Singapore's electricity generating capacity.

When it launched the sale of the generating companies, starting with Tuas Power in October last year, Temasek said that 'barring macro shocks', it expected to complete the entire exercise by mid-2009.

With the first sale completed on schedule, indications are that Temasek will want to digest the implications of this transaction before embarking on the next. 'There is ample time,' a source said.

Wong Kim Yin, Temasek's managing director for investment, indicated as much last October when he said that the investment company would see how the Tuas Power sale went to ascertain how best to proceed with the next two sales.

Temasek is likely to 'look at the market to gauge how much interest there is, and whether there is particular interest in Seraya or in Senoko,' the source said. It is likely to get input as well from Credit Suisse Group and Morgan Stanley, its advisers for the sale.

But at least two industry sources reckon the global credit crunch - with banks tightening their lending - is something which Temasek will watch closely before deciding its next move. 'Temasek will probably wait and see how this unfolds,' a source said.

Still, the $4.2 billion price fetched by Tuas Power was well above what the market had expected. 'It's very high,' an official said, adding that the price probably reflects some strategic plan by buyer China Huaneng.

'It probably has a development in mind for Tuas Power that could lower the generator's structural cost so it can get a decent return on its investment,' he said.

The sale of Tuas Power - the newest but smallest (2,670 megawatts) of the generating trio - attracted strong interest. Reportedly eight or nine contenders, including the Bahrain-based investment bank Arcapita and India's GMR Infrastructure, were shortlisted for the final round.

Asked whether the larger Senoko Power (3,300 MW) or PowerSeraya (3,100 MW) would fetch as much if not more than Tuas Power, an official said: 'It's not a linear thing. It all depends on the conclusions which the buyer makes.'