Tan Sri T Ananda Krishnan is back under the spotlight again. This time is due to him selling his power generating assets under Tanjong Energy Holdings Sdn Bhd (TEH), a subsidiary of Tanjong plc to government investment arm 1Malaysia Development Bhd (1MDB) for RM8.5 billion.
It is not a surprise why the reclusive billionaire wanted to relinquish his power generating assets in the country. This is because the fourth generation power purchase agreement (PPA) is expected to not be as attractive as the first generation agreement for the billionaire to bank on.
Analysts and industry observers alike speculated that the fourth generation independent power producers (IPPs) will not be given attractive rates to sell power generated to state utility company Tenaga Nasional Bhd (TNB), judging from the agreement signed for the second and third generation IPPs.
"The latest round of PPA might not be too generous for the IPPs. If you see, the power purchase rates agreed in the second and the third generation are lower than the first generation.
"We don't think the government would want to give the so called fourth generation better rates than the third," says an analyst with a local bank.
However, some observers pointed that Ananda is "offloading" his investment in the power sector because he wanted to get out of regulated sectors. This is because any changes in government policy or circle of power will influence the direction of the business.
Except for his telco business, his other businesses such as power generation, gaming and satellite television are seen as 'regulated businesses'. Power generation business is tied to power purchase agreement with the government, while licenses for gaming business are renewable annually.
Last year, Ananda sold his gaming business, Pan Malaysian Pool Sdn Bhd, to a consortium of Malaysian Chinese businessmen, which include fellow billionaires Tan Sri Quek Leng Chan and Tan Sri Lim Kok Thay of Hong Leong and Genting group respectively.
The reason given for the disposal of the gaming business by Tanjong was as part of its bid to be more shariah-compliance to expand its power generating business in the Middle East.
However, many contemplated that to become more 'Islamic' was not the reason to the sell off of Pan Malaysian Pool, but due to the regulatory nature of the business.
This is because to make Tanjong a shariah-compliant business, Ananda could just list out Pan Malaysian Pool as a separate entity, rather than having to dispose it off in its entirety.
Pan Malaysian Pool controlled about 25% of the number forecasting business in Malaysia, behind two other larger rivals Berjaya Corp Bhd's Berjaya Sports Toto and Magnum, controlled by Multi-Purpose Holdings Bhd.
As at January 31, 2010, Pan Malaysian Pool generated RM730.78 million of revenue and RM234.82 million in operating profits for the Tanjong group. It is a cash cow to the group, besides the more lucrative power generating business.
So could it be that the reason he sold Tanjong's power assets to 1MDB, and Pan Malaysian Pool to a group of Chiness businessmen was because of the high regulatory risks imposed upon these sectors by the Malaysian government?
It is worth noted that TEH does not only own power generating assets in Malaysia, but also in Sri Lanka, Bangladesh, Pakistan, Egypt and United Arab Emirates. It is not known how the regulatory risks in these countries could affect Ananda's decision to sell his entire power portfolio.
"However, the turmoil in Egypt, as the country sees the transition between military rule to civilian government led by the Islamist factions could as well be an uncertain event for Ananda to continue holding power generating assets in the country," says an observer.
"Once Tanjong's power assets is transferred to the government, any arising dispute or policy changes by the incoming government of Egypt could be amicably resolved through bilateral discussions between the two governments," adds the observer.
The direction of which Egypt's new government will take in regards to the country's economy is not yet clear. There remain risk of the government trying to nationalise some of the country's crucial economic sector, which may include power generation, contemplates the observer.
Plus, when it comes to changes in government policies or circles of influences, Ananda has had his share of his businesses being hit by the uncertain political situations in a particular country.
Besides the regulated nature of Malaysia's power generation and gaming businesses, his investment in pay television in Indonesia was met with restrictions which caused him to lose money in the venture. He pulled out from Indonesia soon after making in roads into the country.
Ananda has also been under the spotlight for the wrong reason in India.
He and some of his business affiliates and the former telecommunication minister of India, Dayanidhi Maran are under scrutiny and investigation by the republic's Central Bureau of Investigation (CBI) due to some irregularities in Maxis Communications Bhd's investment in Aircel Ltd several years ago.
It was alleged that Maran as the then telecom minister of India when Maxis acquired stakes in Aircel, favoured the group in the takeover of Aircel over other bidders, and in return investments were made by the Astro All Asia Networks in Sun TV owned by Maran family.
It was also reported that Ananda is planning to exit the pay TV sector in Malaysia, of which his company Astro has been enjoying 15 years of monopoly.
He was reported to include MEASAT Global, the holding company of Astro through MEASAT Broadcast Network System, into the sale of the power portfolio.
However, in the announcement regarding the acquisition of Tanjong's power assets, 1MDB did not mention that it is acquiring the satellite operator as well.
With the introduction of internet protocol television (IPTV) by Telekom Malaysia Bhd (TM) and his own Maxis, Astro is now facing competitions, something it has not experienced for the last one and a half decades, an industry observer points out.
Foreign companies such as Asian Broadcasting Network (ABN) has also been reported to be interested to set up another pay TV station in Malaysia. This move could have send the signal for Ananda to exit the business fast, adds the industry observer.
"There has also been some rumours that the government is mulling for all pay TV stations to share their contents. It's going to be more intense for the sector going forward, so he (Ananda) might not be interested in it anymore," says the observer.
Nevertheless, Ananda's move to exit the power generating business in Malaysia might not be followed by the other first generation IPPs. Other first generation IPPs including YTL Power International Bhd (YTLP), and MMC Corp Bhd's Malakoff.
YTLP and Malakoff are expected to continue bidding for the rights to build power plants for the fourth generation IPPs, according to another analyst with local investment bank.
The analyst said all the first generation IPPs has submitted for their bids for pre-qualification in regards to the Prai power plant in Seberang Prai to the government.
"The government is pushing for a lower rates for the power and renegotiate the first generation PPA for the extension of another ten years period for their power plants,
"The government is also mulling to rope in foreign companies to take a maximum stake of 49% in the Prai power plant project, if the first generation IPPs don't want to renegotiate the terms," says the analyst.
The first generation IPPs are expected to abide to the government's will to renegotiate the rates, as they would not want their assets to be left redundant without making any money, adds the analyst who covers the domestic power sector.
Nevertheless, some large IPPs are contemplating of exiting the business as well, or at least not to bid anymore for the fourth generation PPA, according to the analyst.
Genting Bhd, which controls Genting Sanyen Power Sdn Bhd, might not want power generation to be one of its core businesses going forward, say the analyst.
On the other hand, Sime Darby was reported to be interested in the acquisition of the Jimah power plant, which is held by Jimah Energy Ventures Holdings Sdn Bhd.
During Sime Darby's media briefing on its financial period ended December 31, 2011, its president and chief executive officer Datuk Bakke Salleh pointed out that the group will be looking for acquisition of assets or businesses which is in line with its current core businesses.
After selling out its oil and gas fabrication yards last year, Sime Darby might want to acquire new assets to give its energy division a timely boost. A power plant with a long term concession to supply electricity at a favorable rate is definitely a good choice of investment for the group.
It is not a surprise why the reclusive billionaire wanted to relinquish his power generating assets in the country. This is because the fourth generation power purchase agreement (PPA) is expected to not be as attractive as the first generation agreement for the billionaire to bank on.
Analysts and industry observers alike speculated that the fourth generation independent power producers (IPPs) will not be given attractive rates to sell power generated to state utility company Tenaga Nasional Bhd (TNB), judging from the agreement signed for the second and third generation IPPs.
"The latest round of PPA might not be too generous for the IPPs. If you see, the power purchase rates agreed in the second and the third generation are lower than the first generation.
"We don't think the government would want to give the so called fourth generation better rates than the third," says an analyst with a local bank.
However, some observers pointed that Ananda is "offloading" his investment in the power sector because he wanted to get out of regulated sectors. This is because any changes in government policy or circle of power will influence the direction of the business.
Except for his telco business, his other businesses such as power generation, gaming and satellite television are seen as 'regulated businesses'. Power generation business is tied to power purchase agreement with the government, while licenses for gaming business are renewable annually.
Last year, Ananda sold his gaming business, Pan Malaysian Pool Sdn Bhd, to a consortium of Malaysian Chinese businessmen, which include fellow billionaires Tan Sri Quek Leng Chan and Tan Sri Lim Kok Thay of Hong Leong and Genting group respectively.
The reason given for the disposal of the gaming business by Tanjong was as part of its bid to be more shariah-compliance to expand its power generating business in the Middle East.
However, many contemplated that to become more 'Islamic' was not the reason to the sell off of Pan Malaysian Pool, but due to the regulatory nature of the business.
This is because to make Tanjong a shariah-compliant business, Ananda could just list out Pan Malaysian Pool as a separate entity, rather than having to dispose it off in its entirety.
Pan Malaysian Pool controlled about 25% of the number forecasting business in Malaysia, behind two other larger rivals Berjaya Corp Bhd's Berjaya Sports Toto and Magnum, controlled by Multi-Purpose Holdings Bhd.
As at January 31, 2010, Pan Malaysian Pool generated RM730.78 million of revenue and RM234.82 million in operating profits for the Tanjong group. It is a cash cow to the group, besides the more lucrative power generating business.
So could it be that the reason he sold Tanjong's power assets to 1MDB, and Pan Malaysian Pool to a group of Chiness businessmen was because of the high regulatory risks imposed upon these sectors by the Malaysian government?
It is worth noted that TEH does not only own power generating assets in Malaysia, but also in Sri Lanka, Bangladesh, Pakistan, Egypt and United Arab Emirates. It is not known how the regulatory risks in these countries could affect Ananda's decision to sell his entire power portfolio.
"However, the turmoil in Egypt, as the country sees the transition between military rule to civilian government led by the Islamist factions could as well be an uncertain event for Ananda to continue holding power generating assets in the country," says an observer.
"Once Tanjong's power assets is transferred to the government, any arising dispute or policy changes by the incoming government of Egypt could be amicably resolved through bilateral discussions between the two governments," adds the observer.
The direction of which Egypt's new government will take in regards to the country's economy is not yet clear. There remain risk of the government trying to nationalise some of the country's crucial economic sector, which may include power generation, contemplates the observer.
Plus, when it comes to changes in government policies or circles of influences, Ananda has had his share of his businesses being hit by the uncertain political situations in a particular country.
Besides the regulated nature of Malaysia's power generation and gaming businesses, his investment in pay television in Indonesia was met with restrictions which caused him to lose money in the venture. He pulled out from Indonesia soon after making in roads into the country.
Ananda has also been under the spotlight for the wrong reason in India.
He and some of his business affiliates and the former telecommunication minister of India, Dayanidhi Maran are under scrutiny and investigation by the republic's Central Bureau of Investigation (CBI) due to some irregularities in Maxis Communications Bhd's investment in Aircel Ltd several years ago.
It was alleged that Maran as the then telecom minister of India when Maxis acquired stakes in Aircel, favoured the group in the takeover of Aircel over other bidders, and in return investments were made by the Astro All Asia Networks in Sun TV owned by Maran family.
It was also reported that Ananda is planning to exit the pay TV sector in Malaysia, of which his company Astro has been enjoying 15 years of monopoly.
He was reported to include MEASAT Global, the holding company of Astro through MEASAT Broadcast Network System, into the sale of the power portfolio.
However, in the announcement regarding the acquisition of Tanjong's power assets, 1MDB did not mention that it is acquiring the satellite operator as well.
With the introduction of internet protocol television (IPTV) by Telekom Malaysia Bhd (TM) and his own Maxis, Astro is now facing competitions, something it has not experienced for the last one and a half decades, an industry observer points out.
Foreign companies such as Asian Broadcasting Network (ABN) has also been reported to be interested to set up another pay TV station in Malaysia. This move could have send the signal for Ananda to exit the business fast, adds the industry observer.
"There has also been some rumours that the government is mulling for all pay TV stations to share their contents. It's going to be more intense for the sector going forward, so he (Ananda) might not be interested in it anymore," says the observer.
Nevertheless, Ananda's move to exit the power generating business in Malaysia might not be followed by the other first generation IPPs. Other first generation IPPs including YTL Power International Bhd (YTLP), and MMC Corp Bhd's Malakoff.
YTLP and Malakoff are expected to continue bidding for the rights to build power plants for the fourth generation IPPs, according to another analyst with local investment bank.
The analyst said all the first generation IPPs has submitted for their bids for pre-qualification in regards to the Prai power plant in Seberang Prai to the government.
"The government is pushing for a lower rates for the power and renegotiate the first generation PPA for the extension of another ten years period for their power plants,
"The government is also mulling to rope in foreign companies to take a maximum stake of 49% in the Prai power plant project, if the first generation IPPs don't want to renegotiate the terms," says the analyst.
The first generation IPPs are expected to abide to the government's will to renegotiate the rates, as they would not want their assets to be left redundant without making any money, adds the analyst who covers the domestic power sector.
Nevertheless, some large IPPs are contemplating of exiting the business as well, or at least not to bid anymore for the fourth generation PPA, according to the analyst.
Genting Bhd, which controls Genting Sanyen Power Sdn Bhd, might not want power generation to be one of its core businesses going forward, say the analyst.
On the other hand, Sime Darby was reported to be interested in the acquisition of the Jimah power plant, which is held by Jimah Energy Ventures Holdings Sdn Bhd.
During Sime Darby's media briefing on its financial period ended December 31, 2011, its president and chief executive officer Datuk Bakke Salleh pointed out that the group will be looking for acquisition of assets or businesses which is in line with its current core businesses.
After selling out its oil and gas fabrication yards last year, Sime Darby might want to acquire new assets to give its energy division a timely boost. A power plant with a long term concession to supply electricity at a favorable rate is definitely a good choice of investment for the group.
No comments:
Post a Comment