YTL Corp Bhd, which currently has about RM6bil in cash reserves within the group, is in a “comfortable” position to withstand any eventual rise in global interest rates.
In fact, the YTL group stands to gain RM120mil on the bottom line for every two percentage point rise in interest rates, just from its huge cash pile, according to managing director Tan Sri Francis Yeoh.
Yeoh said there seemed to be a growing consensus that interest rates worldwide would rise later this year. Should that happen, many companies with huge borrowings could come under pressure to sell some of their prized assets.
“There will be a lot of opportunities for YTL if interest rates rise in the second half of the year, as not many companies can take the beating. (On the other hand,) we are in a very comfortable position to grow both our cyclical and regulated assets, as all our long-term assets are hedged,'' he told reporters after four YTL group companies' EGM in Kuala Lumpur yesterday.
The four companies are YTL Power International Bhd, YTL Cement Bhd, YTL Land Developments Bhd and YTL e-Solutions Bhd.
Yeoh said the outlook for the YTL group remained positive. After growing at an annual compounded rate of 42% since 1986, the YTL group expected growth to moderate to a compounded annual rate of over 20% until 2020, which would translate into an earnings growth of over RM300mil a year, he added.
He said the RM6bil cash reserves YTL group had amassed over the years would be used to finance future purchases of regulated assets.
“One might think that RM6bil is quite a lot of firepower for a Malaysian company. But it's a minuscule sum in the global regulated assets business. We really need to have a large sum of reserves if the group were to be able to purchase good regulated assets,'' he said.
Yeoh said YTL group was still eyeing more regulated assets in the South-East Asia region. Earlier this week, it agreed to purchase a 35% stake in Indonesia's second-largest independent power producer (IPP), PT Jawa Power, for US$139.4mil through YTL Power.
He said YTL was becoming more comfortable investing in the region now than seven years ago as corporate governance and transparency had improved.
“We are very much interested in this region, predominantly Thailand, Indonesia, Singapore and Malaysia. While there are risks investing in this region, there's also opportunity for our skill sets, and experience. And after weighing all the risks, I think we will still have a go at it,'' he said.
Yeoh also defended the purchase of Jawa Power, saying that YTL was not ahead of other Malaysian firms in investing in Indonesia.
“A lot of Malaysian companies, including Commerce Asset-Holding Bhd, as well as Singapore firms, such as Singapore Telecommunications Ltd, have invested there years ahead of us.
“While we may have erred by our conservativeness, I think today we have no excuse not to invest there, given an opportunity like that,'' Yeoh said, adding that Indonesia's demand for power had grown over the past few years with economic growth.
But he was quick to say that YTL would not simply invest in any assets without due considerations.
“We don’t buy desperately,'' Yeoh said.
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