YOU can say that Tan Sri Francis Yeoh and his YTL group are in love with operating regulated utilities.
The answer is not hard to find: YTL is one of the pioneers in this business in Malaysia, and now has an impressive list of regulated utilities across three continents.
To hear Yeoh tell it, the regulated business sounds so simple and profitable.
First, you must have a government who understands business; namely the need to allow the investor/operator of the utility a decent profit.
On the other hand, the investor/operator must provide quality products and services at reasonable prices to the consumers.
But of course, it is not as simple as that. It takes years for YTL to build up the expertise and reputation to undertake these huge projects.
But now, with RM4 billion cash in its coffers, YTL Corp is on the lookout for more regulated utilities assets.
Its most celebrated corporate coup to date is the purchase of water and sewerage company Wessex Water Ltd in Britain from the bankrupt Enron of the US.
YTL Power won the coveted asset after edging out other big name rivals that included British banking heavyweights Royal Bank of Scotland and Abbey National, along with Goldman Sachs.
YTL also has a third of ElectraNet Pty Ltd, with a A$980 million concession operating 5,566km of high voltage transmission lines and the principal electricity transmission service provider for the state of South Australia.
To further secure its long-term earnings, YTL is in a joint-venture with Jimah Power Holdings Sdn Bhd to develop a RM5bil 1,400-megawatt coal-fired power plant in Negri Sembilan. It also has a 40 per cent stake in Express Rail Link Sdn Bhd, the concessionaire of the KLIA Express train service that links KL Sentral in Brickfields and the Kuala Lumpur International Airport.
In contrast, its planned investment in a US$600 million power plant project in Hwange, Zimbabwe fell through after it drew criticism that the Zimbabwean government was transferring ownership of assets to non-Zimbabweans instead of indigenous Zimbabweans.
But given the tattered state of Zimbabwe's economy and the political situation in that country, it is probably for the better that the project did not proceed.
From corporate deal clincher to street party host, online education provider and avid supporter of arts, YTL has done well to transform itself from a construction company to a global infrastructure conglomerate.
Stock analysts who cover the group have given strong ratings to the group for its entrepreneurial spirit, professional management, focus, and geographical spread.
ABN-Amro Asia analyst Lucius Chong, who called a “buy” on YTL's stock, says the group had the benefit of a “solid” management team as reflected in the approach that it took during the last financial crisis.
“During that time, there was a great temptation to make more acquisitions, to go out with all the guns blazing. But, YTL took a very measured and progressive approach,” Chong says, adding that relative to other infrastructure companies, the quality of the group's earnings was good.
An analyst with KAF Research agreed that the conglomerate is well managed, adding that it is logical for YTL to seek to acquire more regulated assets that will ensure a stable stream of earnings in view of its sizeable cash pile.
According to Yeoh, YTL learnt about the virtues of regulated businesses as far back as 1986 when it built low-cost houses in Bercham.
“We had a deal with the government where we were given the land without a charge. In that way, we didn't charge the buyers the premium on land either, so they could get their houses at RM25,000 and we could make a small profit. Because we didn't pay for the land, we could give a better designed house at RM25,000.
“We started from a low base of low cost housing and that's why all our products must be low-cost. We want to offer world-class products at Third World prices,” Yeoh says.
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