MALAKOFF Bhd, whose shareholders yesterday approved the RM835mil purchase of a 90% stake in fellow independent power producer SKS Power Sdn Bhd, said the group’s earnings and dividend payout will not be eroded going forward. This is despite the gestation period of 3 years before SKS Power’s Tanjong Bin 2,100MW coal-fired power plant in Johor begins operations in August 2006.
Managing director Ahmad Jauhari Yahya said the group’s profitability would be maintained even with the higher gearing levels and financing costs that would be faced by the company after an expected RM2.5bil nominal value bonds issue that was approved by the Securities Commission last week.
Issued at a discount, the bonds would raise about RM1.5bil to be partly used to fund the large purchase.
Ahmad was speaking to reporters in Kuala Lumpur after Malakoff’s EGM that also gave the nod for the RM282mil acquisition of Prai Power Sdn Bhd, owner of the 350MW natural gas-fired Prai Power Station in Penang.
The SKS Power purchase would be financed by RM735mil in borrowings while the remaining RM100mil would come from internally generated funds. The vendors, Northern Power Sdn Bhd, had offered the remaining 10% of SKS Power to the Employees Provident Fund, said Ahmad.
The consideration for Prai Power, meanwhile, would be satisfied by RM232mil in borrowings and RM50mil from internal funds. Both deals are expected to be completed by end-October.
Another proposed acquisition by wholly-owned subsidiary Kapar Energy Ventures Sdn Bhd for a 40% stake in Kapar Power Plant for an estimated RM4.2bil is expected to be completed by year-end.
Chief financial officer Mohd Rafique Merican said the Malakoff subsidiary and Tenaga Nasional Bhd (TNB) were “close to agreeing terms” on the deal and financing would be sought soon.
Conceding that Malakoff’s gearing following the exercise “would be heavy,” increasing up to a high of 3 times in 2006 from the current 1.3 times, Ahmad said the buys, which would eventually boost the group’s electricity generating capacity to some 4,700MW from the current 1,500MW, was for the future.
“Hopefully, it will bring Malakoff to the next level in earnings and revenue,” he said.
Malakoff beat analysts’ expectations by announcing last week a net profit of RM442mil for the year to Aug 31, up 25% from last year’s RM354mil. It also declared dividends of 25 sen per share for the year, up from 22 sen previously.
With the acquisitions, the company has forecast a 21% market share of the power generation sector in peninsular Malaysia by 2007, based on the total projected installed capacity then of 22,170MW.
Rafique said the earnings could be sustained as the group was starting to benefit from a full year’s contribution from its 75% subsidiary GB3 Sdn Bhd, owner of the GB3 power plant, in 2004, as well as the lower financing costs on the paying down of borrowings used to acquire 75% of Lumut power plant operator Segari Energy Ventures Sdn Bhd.
Ahmad said Malakoff was interested in buying the remaining 25% stake in Segari but was waiting for an offer price from TNB.
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