Toyo Ventures big move into Vietnam power biz

Managing director Steven Song (pic) and independent non-executive director K.C. Tham realised the need of a sustainable power generation to meet the demand in Vietnam, which led them to bring up the idea of investing in a power plant there.

IT was a eureka moment that has made Toyo Ventures Holdings Bhd inch closer towards securing its massive Vietnam power plant project.

The announcement of the power project, along with the subsequent questions about the deal, were finally answered when at the end of last year, Toyo Ventures announced the execution of the deal and has since harboured larger ambitions for its businesses in Vietnam.

Questions over the multi-billion ringgit deal surfaced after Toyo Ventures’ wholly-owned subsidiary Toyo Ink Group Bhd, which specialises in manufacturing printing ink and other materials, said it was building a power plant, How did the project come about in the first place?

To address these issues, the group has shed some light through email in response to queries from StarBizWeek.

It was the discovery of a problem in Vietnam’s Ho Chi Minh City that gave the company the light-bulb moment.

Back in 2007, Toyo Ink invested and entered into a joint venture arrangement with its Vietnamese distributor Citi Ink to build a printing ink manufacturing plant.

It was then that they encountered frequent power supply failures that affected the manufacturing sector.

Managing director Steven Song (pic) and independent non-executive director K.C. Tham realised the need of a sustainable power generation to meet the demand in Vietnam, which led them to bring up the idea of investing in a power plant there.

It has been a long slog from then on until Dec 29 last year when Toyo Ventures surprised the market with an announcement that it had finally executed the build, operate and transfer contract with Vietnam’s Ministry of Industry and Trade (MOIT) for the development of the US$3.23bil (RM13.05bil) Song Hau 2 Thermal Power Plant project.

Toyo Ink had on Dec 1, incorporated a new wholly-owned subsidiary, Song Hau 2 Power Co Ltd in Vietnam to implement the project.

The project was first announced in 2008 and it is Toyo Ink’s first power plant project.

The 12 years revolved around licence approval, presentation to the authorities, feasibility study, negotiations and the finalising of various agreements.

Song Hau 2 Power inked a power purchase agreement (PPA) with Vietnam Electricity (EVN) on Dec 31,2020 for the power plant project.

This provides for EVN to purchase and Song Hau 2 Power to sell electricity generating capacity generated by the facility for 25 years after the commercial operation date.

The tariff charged by Song Hau 2 Power to EVN comprises capacity, energy and supplemental charges.

“Toyo Ink has provided a 1% initial security deposit and fulfilled MOIT’s conditions after all the major agreements were signed on Dec 31, ” Toyo Ventures says in the email.

Toyo Ventures says the company’s profile will change following the building and running of the Song Hau 2 Thermal Power Plant, which it says is the first ultra-supercritical coal power plant in Vietnam.

Toyo Ventures also entered into an investment and development agreement with Toyo Ink and China Energy Engineering Investment Corp Ltd (CEEIC) on Jan 22 for the proposed divestment of Toyo Venture’s equity interest in Toyo Ink to CEEIC pertaining to the proposed investment cooperation and development of the power plant.

CEEIC has since provided a banker’s guarantee of US$6mil (RM25mil) to Toyo Ink for the project and it is currently conducting due diligence on the latter.

CEEIC, a subsidiary of Hong Kong-listed China Energy Engineering Corp Ltd, will be the engineering, procurement, construction and commissioning (EPCC) and technology provider for the power plant.

Toyo Ink will also be getting part of the EPCC contract to generate income to pay for the project’s equity portion.

While power plants, if run successfully, have the ability to churn out much cash flows, there are a number of challenges.

For example, there is the construction risk of the project. Secondly, one could face challenges in securing raw materials such as coal or gas and finally, with the focus on environmental, social and governance (ESG). Emissions and other environmental issues need to be managed well.

Asked if the group will undertake some level of construction work for the project considering its size, the group says it will only disclose this after achieving the financial close, targeted in March next year.

Toyo Ventures says it is considering setting up a construction unit and will inform the relevant authorities in future.

“The construction of the power plant will start within three months after the financial close and it will take 51 months to build before achieving the commercial operation date (COD).

“We expect it to start contributing revenue and cash flow to Toyo Ventures through Toyo Ink after the COD, ” it says.

The group is considering turning Toyo Ink into a construction or infrastructure company due to the high revenue and income that would come from the power plant project.

“The project will contribute positively to Toyo Ventures besides the current manufacturing and trading businesses, ” it says, adding that it will continuously seek business opportunities to enhance its shareholders’ value.

While the power plant project is expected to bring in major earnings for the group, Toyo Ventures will still maintain its current businesses.

Apart from the energy business, the group operates through two business segments, namely, manufacturing and trading and investment holding. Its manufacturing segment includes the manufacturing of printing ink, colour pigment, colourants for plastic and electrical discharge machining (EDM) cut-wire, among others.

The group has recently undergone an internal reorganisation exercise and a transfer of the listing status to Toyo to allow for greater ease and flexibility of operating companies and with clear demarcation of roles and functions.

It posted a net profit of RM984,000 for its second quarter ended Dec 31,2020, which was 73% lower year-on-year (y-o-y) but this was mainly due to the gain from the disposal of investment property in the previous corresponding quarter.

As at Dec 31,2020, the group had invested RM391.9mil in the power plant project, where RM309.85mil was advanced by a major shareholder of the group while the balance of RM82.05mil was through the internal funding of Toyo Ventures and its subsidiaries.

On April 16, Toyo Ventures completed the second tranche of its private placement. It has placed out a total of 10.7 million shares to identified investors in both tranches at an issue price of RM2.35, raising a total of RM25.15mil.

The bulk of the proceeds will be injected into Toyo Ink as advances for its equity investment in Song Hau 2 Power and other compliance expenses of the company such as legal, secretarial and consulting fees.

Toyo Ventures’ shares generated strong interest in the market from December last year until early February this year due to the power plant project.

After hitting RM1.05 on Feb 23 in 2018, Toyo Ventures’ share price never closed at RM1 or higher and traded consistently in the 60 sen to 80 sen range.

It was only after the Dec 29 announcement in 2020 that the counter started to soar.

It hit limit up the next day after adding 30% to RM1.30 and it continued rising, hitting its peak of RM3.89 on Jan 19 and profit taking activities ensued.

Toyo Ventures closed one sen lower at RM2.38 yesterday with 31,800 shares done, giving it a market capitalisation of RM255.74mil.

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Toyo Ventures , Toyo Ink , Steven Song , Vietnam , power ,


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