Champagne on ice


  • Business
  • Saturday, 26 Jul 2014

ON Thursday Tenaga Nasional Bhd (TNB) announced it signed a heads of agreement (HoA) with SIPP Energy Sdn Bhd, outlining the principal terms of the proposed joint venture between the two parties to build, own and operate a new 1,000 MW-1,400 MW combined cycle gas turbine (CCGT) power plant in Pasir Gudang, Johor.

The agreement comes a day ahead of the Energy Commission’s (EC) deadline yesterday to respond to the conditional award.

Some analysts, while generally positive on the announcement, think it may be a little too early to celebrate.

PublicInvest Research says in a note that it understands the HoA is “a non-binding agreement to cooperate with SIPP Energy and further details regarding the joint venture have yet to be discussed and finalised.”

AmResearch in its report, meanwhile writes that “As TNB needs to reply to the EC’s offer by Friday, we believe that this announcement, which did not indicate the HoA duration, is to provide additional time for deliberation.”

The project site will be on available TNB land but details on the shareholding structure, capital expenditure requirement, capacity payment and what the project’s internal rate of return are still pending.

It would be interesting to see the kind of role TNB will play in this joint venture now that YTL POWER INTERNATIONAL BHD is effectively excluded from the new power plant project as there will be no re-tender.

In the past, TNB has been a minority shareholder in a number of independent power producers, taking up about 20% stake. But in this venture, it would be a surprie if it ends up with a minority stake.

This is on the grounds that SIPP Energy, which is the vehicle of the Sultan of Johor, is a newcomer in the power game. The new power plant dubbed Project 4A is possibly one of its first large-scale project while TNB is a seasoned hand in the industry.

PublicInvest estimates the new power plant will cost RM2.5bil-RM3.5bil, based on the cost of the Prai CCGT power plant, which TNB won in 2012.

While the tariff has not been determined, the EC has stated that the award was conditional upon a comparable levelised tariff, with the Prai CCGT’s winning bid of 34.7 sen per kWh as reference. Two other conditions under the EC’s offer for Project 4A are that the engineering, procurement, and construction provider must be selected through a competitive bid for a proven gas turbine technology; and thirdly that the technical and commercial proposals have to be approved by EC.

Recall that last year, SIPP Energy had partnered YTL Power to bid the 2,000 MW coal-fired power plant dubbed Project 3B, which they had narrowly lost to 1Malaysia Development Bhd.

Mystery remains unresolved 

REMEMBER Asiasons Capital, Blumont Group Ltd and LionGold Corp, the three high flying stocks on the Singapore Exchange that fell with a thud over just two trading days in October last year.

The principal officer of one of the companies is back in the news yesterday.

A foreign newspaper reported that Goldman Sachs, the international investment bank, had won a civil suit that was brought against it by James Hong Gee Ho.

Hong who is the executive director of Blumont, had a credit facility with the bank and had filed a suit against it last year. He claimed that Goldman Sachs sold his shares that were held as collateral for a loan, without achieving a fair price.

The article did not state which are the shares held in collateral.

But it was reported last year during the sell-down of the three stocks that Hong’s interest in Blumont was being forced sold.

The plunge in the stock price of the three stocks wiped out S$8bil from the market and started what is now known as the sell-down of penny stocks in Singapore.

Nobody could point a finger on what caused the sell-down of the three stocks that has some common shareholders.

Beyond the three companies, another four companies were also implicated with a web of cross holdings. Among the four companies were Magnus Energy Ltd and Ipco International Ltd.

Even the Singapore authorities have yet to throw the book at anybody despite months of investigations.

In the aftermath of the sell-down, the principal officers put the blame on banks that had indiscriminately sold down the shares.

This gave rise to the suit by Hong against Goldman. However he has withdrawn his claim without the case even going to trial.

So, this leaves the mystery of who started the sell-down of the Singapore stock unresolved.

Look before you leap

CAVEAT emptor – that might be a good piece of advice for investors who think initial public offerings (IPOs) are stock market gold.

On Thursday, newly-listed Icon Offshore Bhd’s investment bank announced that it had ceased a one-month stabilising action on the shares.

That led to a 9% drop in the counter to RM1.74 yesterday from a peak of RM1.91.

Icon Offshore was listed at RM1.85 apiece, or 18-19 times its projected earnings this year, and a premium over the sector average of 13 times at the time.

The offshore support vessel provider, one of Malaysia’s largest by fleet size, asked for valuations that put it in the same league as the large cap, integrated players like BUMI ARMADA BHD and SapuraKencana Petroleum Bhd.

Maybe this is what happens when you leave little in the way of upside for investors.

During the stabilisation period of June 25 to July 24, Maybank Investment Bank said it had purchased a total of 43.67 million shares in the open market at a price range of RM1.85 to RM1.89 a share.

It also exercised the over-allotment option for 32.94 million shares, fully covering the 76.62 million shares under the over-alloted portion.

The shares bought under the price stabilisation action and the proceeds from the sale of the over-allotted shares will be returned to Hallmark Odyssey Sdn Bhd, a major shareholder of Icon Offshore.

While many of this year’s IPOs have performed admirably – Sasbadi Holdings Bhd, Econpile Holdings Bhd, and Tanak Makmur Bhd are up 18%, 69% and 66% respectively, since their debuts – investors shouldn’t take this as a guarantee that listings are infallible.

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