INDEPENDENT power producer Malakoff Bhd is buying a 90% stake in SKS Power Sdn Bhd from Northern Power Sdn Bhd for RM835mil cash. The acquisition will enable Malakoff to expand its power generation capacity to 3,595 MW from 1,705 MW now.
In a statement to the KLSE yesterday evening, Malakoff said it had entered into a conditional agreement with Northern Power to acquire 4.5 million shares in SKS Power, which is involved in the construction, operation and maintenance of a 2,100-MW coal-fired power plant in Tanjung Bin, Johor.
SKS Power had signed a power purchase agreement (PPA) with Tenaga Nasional Bhd in July last year to sell electricity to the national utility for 25 years from the commercial operation date of the first 700-MW unit of the plant at an average 13.5 sen a unit.
The first unit is scheduled to start commercial operation on Aug 31, 2006, to be followed by the second and third units, also of 700 MW capacity, on Feb 28 and Aug 31, 2007, respectively. This means the power plant will start contributing to Malakoff's cash flow and earnings as early as in August 2006.
The PPA also contains an option to extend the agreement by three additional periods of five years each.
Malakoff said the coal-fired Tanjung Bin plant would diversify the group's power generation capacity portfolio, which now consists only of gas-fired power stations.
The statement said that with the addition of the coal-fired plant, the group would be in a better position to compete with other independent power producers “in the event competition is introduced in the power industry”.
Furthermore, Malakoff expects the Tanjung Bin power plant to benefit from its strategic location within a high-load growth centre and its close proximity to the Port of Tanjung Pelepas.
Malakoff said the purchase consideration was arrived at on a willing buyer-willing seller basis after taking into consideration the valuation of the entire equity interest in SKS Power as of July 31 of between RM766.2mil and RM1.086bil by PricewaterhouseCoopers Advisory Services Sdn Bhd.
The proposed acquisition came as no surprise as Malakoff had already signed a memorandum of understanding with Northern Power in June to buy at least 60% of SKS Power.
But the 90% stake in SKS Power that Malakoff now proposes to buy is larger than what many analysts had expected and the price tag is also slightly higher than anticipated.
Some analysts consider the deal an “inter-related party” transaction as the buyer and seller have common shareholders.
They say it also underlines the intention of Malakoff's major shareholder, Malaysia Mining Corp Bhd, to house all its power generation assets under Malakoff.
They expect the acquisition to be earnings enhancing for Malakoff. It would allow the company, already the largest IPP in the country, to capitalise on the continuing rise in power demand.
Analysts estimate the development cost of the Tanjung Bin plant at RM6bil to RM8bil. Hence, they projected Malkoff would have to borrow RM500mil to finance the acquisition and its gearing ratio may peak next year.