MIDF Research said its quick channel checks suggest this is a strategic investment decision for YTL Power.
PETALING JAYA: YTL Power International Bhd
has emerged as a substantial shareholder of competitor Ranhill Utilities Bhd, with the acquisition of 243.33 million shares in the latter, equivalent to an 18.87% stake.
The equity purchase came barely two days after Ranhill had inked a memorandum of understanding (MoU) with China Energy International Group Co Ltd (CEIG) to collaborate on the Djuanda source-to-tap drinking water supply project in Indonesia.
Analysts were generally positive about the stake buy move for both parties, especially as it has come almost immediately following the MoU signing, where the attraction of the Djuanda project is its 30-year concession and an expected project internal rate of return in the low to mid-teens.
Some observers believe the acquisition by YTL Power is up the alley of executive chairman Tan Sri Francis Yeoh, who has always had a keen eye on regulated assets, and as such this can be seen as a sensible initiative by the cash-rich utility player.
While it is still early days with further details expected to be announced in the coming weeks, MIDF Research said its quick channel checks suggest this is a strategic investment decision for YTL Power, before adding the shares were a block acquisition from Cheval Infrastructure Fund LP.
“There are good assets within the Ranhill group that YTL Power is seeing, such as its exclusive rights to Johor water supply and Sabah power sector exposure.
“Ranhill has been building exposure in the renewable energy (RE) sector via its soon-to-be operationalised 50MW large scale solar (LSS4) plant in Bidor and is actively looking to expand its presence in this space,” the research house said as its initial take in a short note.
MIDF Research commented that YTL Power is building its presence in Johor and RE, via the upcoming Phase 1 of its 72MW data centre and its 500MW solar farm in Kulai.
The research unit said YTL Power has also indicated interest to participate in RE exports to Singapore, pending finalisation of the RE export framework by the government.
On the equity purchase of Ranhill, MIDF Research said: “Since the stake of YTL Power post-acquisition is still below the 20% threshold, we see no impact to its earnings at this point, unless there is intention by the company to increase its stake further in Ranhill and if any strategic venture with the latter is on the cards.”
Based on the 58 sen closing price of Ranhill on Tuesday, it said the acquisition cost could come up to a total RM141mil, which would barely put a dent on YTL Power’s balance sheet.
Ranhill shares rose 15.5 sen to close at a year high of 73.5 sen on the YTL Power stake buy news yesterday.
Meanwhile, Rakuten head of equity sales Vincent Lau believes the acquisition by YTL Power will be a simple, business synergistic move.
“Both companies are in the regulated water utilities assets and are efficiently run. It is not surprising that YTL Power is seeing a lot of value in what Ranhill is embarking on, particularly with Ranhill’s expertise in sustainable energy solutions, a trend that has taken the world by storm in recent times,” he told StarBiz.
He did not discount the possibility that YTL Power could be looking to increase its stake, and therefore fortifying its position in Ranhill after this, likely making the latter an associate company.
News of the share acquisition sent the share price of YTL Power up 7 sen, or 3.3%, to RM2.18.
