YTL POWER INTERNATIONAL- ACQUISITION OF SINGAPORE SERAYA POWER PLANTS

INTRODUCTION
The YTL Group has been known for going on a shopping spree during economic turmoil, and so far,
Singaporean assets have proven to be the group's favourites for the year of 2008. With the global
equity market crash and having $3.8 billion cash in hand was a tough time for Tan Sri Francis Yeoh
Sock Ping. (1).Despite critics from fund managers and analyst, Yeoh however had different view
against his critics. Hunting for equity bargain though lose out to multinational rivals in two attempts
does not stop him to see the light at the end of tunnel in grabbing precious asset from Temasek
Holding, a well known Asian investment house.
Just slightly over a month after YTL Corporation announced that it was going to buy a stake in a SGXlisted real estate investment trust (REIT) ,its power arm YTL Power International Bhd surprised the
market last year by proposing to buy the entire stake in PowerSeraya from Temasek Holdings for
S$3.6 billion (RM8.6 billion). YTLs acquisition of PowerSeraya has been unexpected as just two
weeks before December 8, 2008, Temasek scrapped the tender process for the power sale in view of
the global credit crisis which has depressed asset prices and affected funding for its potential bidders.
A source familiar with the deal says Temasek initially called off the tender process because interested
parties had either pulled out of the bidding process or offered low bids, mainly due to poor market
conditions. Under such circumstances, Temasek's arranger then repackaged certain elements of the
deal, in which YTL Power saw an opportunity and submitted an unsolicited bid to the Singapore state
investors.
YTL Power's acquisition of PowerSeraya will be funded by S$1.15 billion in cash and an acquisition
loan provided by DBS Group via an arrangement with Temasek. Although the deal included
PowerSeraya's S$550 million debt, analysts say the power plant is a stable and profitable company,
after registering net assets of S$1.21 billion and net profit of S$218.3 million for FY2008 ended March 31.
"There are no more major utilities assets to buy in Singapore, so this is obviously YTL Power's last
chance to get hold of one, if it wants to be a meaningful utility player there," OSK Research head
Chris Eng tells The Edge. 39
Temasek had, in 2007, planned to dispose of all three large power plants it owned, after the
liberalization of Singapores electricity market and the introduction of the New Electricity Market in
2003. The three plants generate about 90 % of Singapore's power.
It is noteworthy that this is the third attempt by YTL to acquire a Singapore-based power plant, after
failing to capture Senoko Power Ltd and was Power Ltd, which Temasek has sold to foreign
companies. The deal is sweetened by the fact that it is the final power generation company that
Temasek is selling under a divestment plan it announced in July 2007.
YTL CORPORATION
YTL Corporation listed in Bursa Malaysia's since 1985, the group together with its six listed
subsidiaries has a combined market capitalization of about RM27 billion or USD 7.8 billion. With total
asset as at May 31st, 2009 amount to over RM45 billion or USD13 billion also been listed on the Tokyo
Stock Exchange since 1996 and being the first Asian non-Japanese company to be listed there.(3).
Starting as a construction company back in 1955, YTL fortune came into reality when the company
venturing into the utility industry. Lucrative deal awarded by Tenaga Nasional Berhad which protects
YTL Power from demand risk for a minimum take or pay 7450 gigawatts of electricity (about seventy
two percent) of its plant output assured annual income to about RM1.1 billion.(4).
The philosophy and strategy behind YTL success as stated in their official web http//:www.ytl.com

YTL Corporations strategy of offering "World Class Products and Services at Competitive Prices"
extends across the range of its business activities, and is perhaps the single most important factor
underpinning its success today in enhancing shareholder value. This policy has not only ensured that
the group is able to offer attractive, high quality products and services to its customers at competitive
prices, but also contributed directly to its success in achieving a compounded annual growth rate in
Pre-tax profits of 55% over the last 15 years.
As quoted by its Managing Director in his speech at Siemens Global Power Generation Symposium
2002 in Orlando, Florida, United States titled World Class Product at Third World Price.
For years, we at YTL have been using a development strategy that has been extremely successful,
whether we apply it to hotel and resort industry, transportation enterprises or power generation.
The group realized that keeping the cost down as a good strategy to ensure the products is affordable
to customer especially knowing its consumer from a third world or developing countries. Two
strategies in achieving this is first by getting financing from a local lenders and local currencies, and
second is build for less so that it will be lesser borrowing. (*)
Amongst the group's other key businesses are utilities, high speed rail, cement manufacturing,
construction contracting, property development, hotels & resorts and technology incubation and it
serves more than 10 million customers in over three continents.
Utilities division saw a robust financial performance especially from foreign operations in which giving
the most significant contributor to YTL earning. (#). This could be easily understood as the nature of it
businesses in the well develop and matured market.
With 65% stake in YTL Cement Berhad, the group has access to the industry which is inter-related
with its core business construction. Having cement manufacturing plants and hundreds of concrete
batching plant, continue to strengthen their position well in Malaysia and ASEAN market. Full
integration and supply chain giving YTL an economics of scale and cost saving in the sector.(%).
YTL Land & Development currently has a land bank of more than 2,000 acres of strategic
development land in Malaysia. The estimated sales value is RM12 billion ringgit (US$ 3 billion). (^).
Their largest project in Sentul, Kuala Lumpur consist of residential and commercial development. The
group target to generate RM 8 billion or US$ 2.1 billion in the next 7 years. (!)

Mutlti winning award Pangkor Laut Resort and Ritz Carlton Hotel are among brand name associated
with YTL. A chain of Vistana hotels also add to the group contribution against its rival. Providing a
unique, excellent service, accommodations and facilities give YTL a much respected from its
customer. All this are under YTL Hotel and Properties Sdn Bhd which it fully own.
Does not want to be left behind in IT, YTL e Solutions a new organic grown business activities within
the group, listed in MESDAQ market of Bursa Malaysia. WiMax license by Malaysian
Communications and Multimedia Commission (MCMC) to roll out a 2.3 GHz wireless broadband
nationwide WiMAX network in Peninsular Malaysia to one the subsidiary giving YTL an access to
millions of internet user in the country.(qq)
With the recent acquisition of MP REIT in Singapore, giving additional REIT collection to the group of
their existing one, Starhill REIT which are the largest real estate investment trust value at RM 866
million or US$234 million.
Travelling within 28 minutes between KLIA and KL City in Express Rail Link ( ERL) reduce the hassle
of travelling distance of 57km in the heavy traffic of Kuala Lumpur city. Built at RM35 million per km
being the cheapest high speed rail link in the globe. Express Rail link is another icon of YTL.

THE MAN BEHIND IT

Among most prominent and powerful businessman in the country and internationally today, Francis
Yeoh took helm of YTL from his father in 1978 at the age of 24 upon returning from his engineering
study in Kingston University, United Kingdom.(2). Synonym with YTL Corporation as a brand name,
Francis Yeoh who was appointed as Managing Director of YTL Corporation in 1988, in which under
his stewardship the company growth enormously. Heading one of the largest Malaysia's
conglomerates which the group was founded and named after his father, Tan Sri Dato' Seri (Dr.) Yeoh
Tiong Lay is a real challenge for Francis Yeoh which later turned YTL to as it is today.
Francis Yeoh the eldest son of Yeoh Tiong Lay finish his secondary education at Victoria
Institution,Kuala Lumpur . He was awarded the First Malaysian Ernst & Young Master Entrepreneur
of the Year Award in 2002 in recognition of his entrepreneurial acumen.
BusinessWeeks awarded him as "25 Stars of Asia 2003" on November 6, 2003 in Hong Kong; and
was ranked 21 by Fortune Magazine Asia's 25 Most Powerful Business Personalities on August 9,
2004.

THE YEOHS FAMILY

Knowing the group core competency is the construction industry as where the business started years
back after the World War II by Francis Yeohs grandfather.(*). Yeohs family hold tight their solidarity in
continuing the journey of the family. Dominated the YTL board director member are from Yeohs family
where eight out thirteen easily understood(#) as Francis Yeoh being the eldest from the third
generation and his father is currently the Executive Chairman. Currently Francis Yeohs kids also
involve directly in YTL day to day operations. The family net worth estimated to US$1.7 billion making
it sixth richest clan in Malaysia.(&)
Setting higher bar for the member of the family, Francis Yeoh insisted on an honors degree in
engineering or any similar degrees related to industry YTL are in as he does not wants any mollycoddled sibling coming in avoiding nepotism and cronyism.
So most of them have graduated or are graduating from the best colleges, such as the Imperial
College London, the University of Cambridge, the University of Oxford, the University of Nottingham,
the London School of Economics. (&)
MALAYSIA POWER
Malaysias independent power producers (IPPs) contribute forty percent electricity of nations output in
which YTL Power is part of it. (5). A massive nationwide black out in 1992, triggered Malaysian
government to issue the IPP licences on the primary reason of reducing government involvement in
day to day commercial business activities, lighten burden from need to increase power output double
by 2020 and would allow utility company to broad its business based.(6). Based in 2004 statistic, YTL
Power with two power plants, Paka and Pasir Gudang power plants would be able to produce
1212MW electricity running on natural gas.(7). Though it was at the advantage of independent power
producer, setback is for Tenaga Nasional Berhad as overcapacity in electricity need Tenaga to reduce
its own generation. The electricity demand growth was overestimated caused even in Peninsular
Malaysia a surplus to about fifty percent prior to Asian financial crisis in 1997.(8). However, as
Malaysia storm through out of Asian financial crisis in 2001, nations electricity supply and demand
back to balance up. Post crisis, YTL Power was awarded another concession of 2100 MW coal fired
Jimah Power station however it was not completed and YTL Power withdrew from the project due to
some deadlock in the new power agreement.(9)
Though the financial crisis did not really hurt the IPPs as they did not hold foreign debt and most of
their operations inflow and outflow dominated by local currency, the 1997 financial crisis however hurt
Tenaga very much. Tenaga was hit by currency devaluation for its debt almost to 40% or RM2.2 billion
of US dollar denominated loan.(10). Coupled with the mandatory payment of oversupply need Tenaga
to renegotiate the power agreement with the IPPs and Tenaga withheld payment to the IPPs. Tenaga
was looking at power agreement rates change in exchange for longer term which beyond 21 year.

IPPs however in the other hand disagreed but were later agreed on the payment term, the power
agreement remain unchanged.(11).
Learning post financial crisis, Malaysia tried to implement power pooling system, liberalize power
generation and abolish restriction to transmission and distribution sector. This however was put off
due to California crisis.(12) and started to open up for more open tender to allow healthy competition.
Malaysian IPPs experiences give investors a positive perspective (13) with first round investments are
profitable. The earliest IPPs i.e. YTL Power, Malakoff, Genting Sanyen, PD Power Berhad and
Powertek recorded a handsome eighteen to twenty five percent internal rate of return as some analyst
quotes.(14). By looking all these experience, development of Malaysian government policy and goals
for a high economic growth, the power business by IPP are lucrative and somehow protected.(15).

YTL POWER
Building on the strength of its core business and experience in the power business in Malaysia, YTL
Corporation through its subsidiary YTL Power expand their horizon not only locally but also
internationally. With the healthy cash position, YTL Power acquired ElectraNet Pty in year 2000 which
operate South Australia power transmission grid.(16). US$35 million investment in ElectraNet Pty
entitled YTL Power to hold 33.5% stake with 200 year concession in the state of South Australia.(17).
The collapsed of Enron, opened up a golden opportunity for YTL Power in which it successful in the
bid for Wessex Water in United Kingdom. In 2002, Wessex Water was grabbed by YTL Power for only
1.2million pound which is less then what Enron paid when they acquired it. (18). Though it was a high
profile buy where YTL Power succeeded over a consortium led by Royal Bank of Scotland and Abbey
National and initially marred by alleged bribery deal, the deal was finally cleared for any wrongdoing
Through Wessex Water, YTL Power has access to 1.2 million water and 2.5million customers in South
England.(19).
Succeed in Wessex water does not stop Francis Yeoh from pursuing his ambition on YTL to be a
Global Power by 2020 and also predicted of annual compounded rate at twenty percent until then.
(20). YTL move further in 2004, acquired thirty five percent of Indonesian second largest independent
power generator, PT Jawa Timur. As part of the deal, YTL also acquired 100% of the 1220MW coal
powered plant operatorship under PT Powergen Jawa Timur for USD3.6million.(21).
With the recent economic crisis, YTL is looking forward to the premium property market in South East
Asia, Singapore as their shopping spree. At deal closure of acquisition in 26% stake in Macquarie
Prime REIT and 50% of Prime REIT Management Holding Pty Ltd for amount of S$285 million giving
YTL a control over the REIT.(22).However this is not the only one that YTL is targeted as the asset
value decline. With the ambition back in 1996, knowing it position in the power business and
competitive advantage it has in Pasir Gudang Power Plant, YTL Power was given a green light by
Malaysian government to export electricity to Singapore, even though it was subsequently turn down
by Singapore Public Utility Board(PUB).(23). YTL Power though did not rest their hopes.

POWERSERAYA
PowerSeraya is the second largest power generation company in Singapore in terms of installed
capacity, with a total licensed capacity of 3100 megawatts, representing approximately 25% of
Singapore total licensed generation capacity. Power Seraya operates under an electricity generation
licence granted by the Energy Market Authority of Singapore for a 30 years period to 2032.
PowerSeraya was originally corporatised as a subsidiary of Singapore Power Ltd on 1 October 1995
as part of the restructuring exercise within the electricity industry by the Government.
Subsequently on 1 April 2001, the ownership of PowerSeraya was transferred from Singapore Power
Ltd to Temasek Holdings (Pte) Ltd to facilitate the eventual divestment and sale of PowerSeraya.

Since then, PowerSeraya has strengthened its position to be one of the major power companies in
Singapore. PowerSeraya focuses its core business activities in the generation of electrical power for
sale into the Singapore Electricity Pool, and through its subsidiary Seraya Energy Pte Ltd, supplies
and retails electrical power to consumers.
PowerSeraya has a stake in Oiltanking Seraya Pte Ltd, a joint venture between Seraya Energy and
Investment Pte Ltd (the investment arm of PowerSeraya) and Oiltanking Singapore Ltd. Formed in
1997, Oiltanking Seraya Pte Ltd provides fuel oil storage services through its oil storage tank facilities
located at Pulau Seraya Power Station.
The principal activities of PowerSeraya are power generation, retailing of power and trading of
physical fuels. The activities include the sale of other utility products, trading of fuel-related
derivatives instruments, tank leasing activities and sale of by-products from the electricity
generation process. The principal activities of its subsidiaries consist of the sale of electricity,
oil trading and oil tank leasing.
PowerSeraya is the first power generation company in Singapore to use four alternative sources of
energy heavy fuel oil, natural gas and diesel to power its plants; enabling it to provide reliable
electricity to customers at affordable prices. PowerSeraya was first granted a generation licence in
1995 under its former name, PowerGen Seraya Limited by Singapore Public Utilities Board.
Power Seraya now operates under the PowerSeraya licence, which authorize Power Seraya to
generate electricity from its generating units and trade in the National Electricity Market of
Singapore.
PowerSeraya owns and operates Pulau Seraya Power Station and Jurong Power Station
(Singapores Power Stations). What is the plant's generating capacity?
PowerSeraya has 1 steam plant (9 units), 1 open cycle gas plant (2 units) and 1 combined cycle plant
(2 units) totaling a licensed generating capacity of 3100 MW. The Combined Cycle Power Plant uses
natural gas and the steam plant uses heavy fuel oil.
PowerSerayas plant on Jurong Island built in 1986, was Singapores first offshore power station with
nine units of 250 MW oil-fired steam generating units and two units of 20 MW gas turbines; an
installed capacity of 2290 MW. To further strengthen its position as a top energy supplier, two units of
370 MW Combined Cycle Gas Turbines were added boosting our installed capacity to 3240 MW.
With increasing competition and the trend towards using Combined Cycle Power Plant (CCPP) units
to provide the baseload, PowerSerayas steam units were no longer efficient.
In a bold move in 2003, PowerSeraya embarked on a full scale plan to convert three units of its
conventional steam plants to run on Orimulsion, a trademark economical fossil fuel; with the option
to run on heavy fuel oil. This capital investment of S$200 million, due to be realised by end 2005, is
part of an integrated multi-fuel strategy that will allow the Company to maximise the operational
efficiency of its generation units and lower portfolio costs.
More significantly, this is in line with PowerSerayas long term strategy to offer more energy options to
boost the security of Singapores electricity supply. Backed by a long term fuel supply agreement for
Orimulsion, PowerSeraya will be able to offer both fuel diversity and security to meet Singapore
nations energy needs.

YTL POWER ENTRY TO SINGAPORE

Singapore as net importer of energy relied on imported oil and gas for their energy demand. Electricity
demand growth at 6.4% from 1996 to 2002 and expected to grow between 3 to 5% from 2003 till
2013.(24). Singapore electricity industry was restructured in 1995 and continued to see further

restructuring to maintain its competitiveness while ensuring the security and reliability of the supply.
As of July 2001 consumer with consumption of 2Mwatt or more would be able to buy electricity from
competitive retailers, subsequently the plan is to allow more consumer to be able to do so.(25).
In late 2007, Temasek Holding Ltd in line with Singapore government policy to introduce competition
in their economy revived their plan which was delayed by six year to sell their three power utilities.
The three generators namely Tuas Power Ltd, Power Sonoko and Power Seraya produce 90% of the
islands power generation.(26). The sale attracted attention from many parties who are willing to put a
price reserve for it. Among others who are willing such as Marubeni Corp, Keppel Corp, and
SembCorp Industries Limited.(27). Joining the fray was YTL Corp, as told by Francis Yeoh to its
shareholder on Dec 2007,it is essential for YTL to ensure good return and looking forward for various
opportunities in Singapore.(28).
PowerSeraya is the third of three power companies that Temasek is selling as part of efforts to
liberalise the Singapore electricity market. Temasek said it remained committed to divesting all power
companies in Singapore. The Straits Times, November 25, 2008 The firm's plant has a capacity of
3,100 megawatts (MW) but this will rise to 3,900 MW by 2010 as it is in the process of building an 800
MW capacity natural gas-fired plant.
With the sale of Seraya, the Singapore government would further open the industry to competition
after disposing of Senoko Power, the island's biggest generator, and Tuas Power, the smallest of the
three plants.
PowerSeraya posted a profit of $218 million (US$144 million) on revenue of $2.79 billion in the
financial year ended March 2008. The Seraya Power Station, which consists of two blocks of natural
gas-fired combined cycle plants and nine units of steam plants. 38

In March 2008, leading in the fray was China Huaneng Group for Tuas Power Limited at the price of
US$3 billion, Huanneng oust other bidders in this highly attractive deals.(29). Next in September
2008,Senoko Power follow the trail at price of US$2.5 billion in cash sold to a consortium led by
Marubeni Corp. Together with Marubeni, GDF SUEZ S.A, The Kansai Electric Power Co. Inc, Kyushu
Electric Power Co. Inc. and Japan Bank for International Cooperation formed the consortium.(30).
The last of three utilities asset is Power Seraya second largest which generates about 30% of the
islands electricity supply. Power Seraya posted a net profit of S$218 million on revenue of S$2.79
billion financial year ended in March 2008. It was however on late November, 2008, Temasek shelved
the sale of Power Seraya though in it early plan it was also for sale. This action was taken after
considering the global credit crisis which caused the asset devalue and froze any funding for the
potential buyer.(31). Unsuccessful in Senoko bid together with persistence believe in the growth
strategy of acquiring regulated businesses with long term concession which could lead to highly
predictable revenue and profits (32), YTL Power offered unsolicited proposal to Temasek. The
proposal interest Temasek and within a week , YTL Power conclude to agree on US$2.4 billion in
stock and debt which also ten times of Power Seraya EBIDTA.(33). The deal was finalized in March
2009 as announced by YTL in it press release.(34).
Benchmarked against the 2 other Singaporean power generation companies, the price to be paid
seems fair on a Price to Book and Price to MW valuation given that the age of PowerSerayas assets
fall between Senoko Powers older assets and Tuas Powers newer assets. On a PER basis however,
the price does seem somewhat of a steal at 16.5x vs 28x for Senoko and 27x for Tuas. Compared
with MMCs purchase of Malakoff, it does seem more expensive but given that the borrowings of
Power Seraya are much lower, the risk associated with the company is thus lower.
RATIONALE FOR THE ACQUISITION OF POWERSERAYA
The YTL Power Group is continuously seeking to develop and expand its presence in utility
businesses both in Malaysia and offshore. Currently, YTL Power owns a 100% stake in Wessex water

Limited, a water and sewerage operator in the United Kingdom, and an indirect 33.5% investment in
ElectraNet Pty Ltd, a company which owns and operates the power transmission grid for the state of
South Australia under a 200-year concession. YTL Power also holds a 35% stake in P.T, Jawa Power ,
which owns 1,220 megawatts power plant in Indonesia and a 100% interest in P.T. YTL Jawa Timur,
the operation and maintenance company for P.T. Jawa Power. YTL Power Generation Sdn Bhd, a
wholly-owned subsidiary of the company is an independent power producer and owns two power
stations with a combined generation capacity of 1,212 megawatts located at Paka, Terengganu and
Pasir Gudang, Johor.
PowerSeraya, with its long-established presence in Singapore, represents a good opportunity to
acquire a well-structured, operating asstes with a proven operational track record, and significant
market share, and which is already generating steady profits. The proposed acquisition would also
enable YTL Power to expand its operation into South East Asias only liberalized power market,
providing YYTL Power with experience in such market prior to further anticipated liberalization in the
region.
The proposed acquisition is n line with the YTL Power Groups strategy of investing in long-term
geographically diverse infrastructure assets, whilst concurrently achieving synergies across its
portfolio of utility businesses. The proposed acquisition would also enable the YTL Power Group to
further diversify the sources and nature of its income-generating activities , which currently
encompass power generation and transmission in Malaysia, Australia and Indonesia, and water and
sewerage operations in United Kingdom.
PowerSerayas strategy to be Singapores leading multi-utility, selling steam, cooling water and other
services in addition to power sits well with YTL Powers existing combinations of power, and water
and wastewater skills, and is in line with YTL Powers strategy to become a global multi-utility
business player.

PROSPECTS AND RISK FACTORS

The foreseeable prospects of the proposed acquisition are as follows:(i)

Development of industry knowledge and expertise

PowerSeraya operates in Singapores competitive power generation and retail
industry which has a well-established market structure and regulatory framework. The
Government of Singapores implementation of operational mechanisms such as
NEMS has succeeded in liberalising the electricity and gas markets in Singapore
within a transparent regulatory framework. The proposed acquisition affords YTL
Power Group a vital opportunity to gain expertise, in addition to the transfer of
knowledge and technology for the potential benefits of the electricity industry in
Malaysia.

(ii)

Transfer of technology
PowerSeraya operates natural gas and oil-fired power stations which would enable
YTL Power to gain further expertise and generate transfer of technology
opportunities. PowerSeraya also has experience in using alternative fuel such as
orimulsion and a high sulphur oil, which would generate further opportunities for the
transfer of knowledge in these areas. The existing infrastructure at its power stations
affords PowerSeraya significant competitive advantages in terms of lower capital
costs for repowering as compared to a new entrant.

(iii)

Stable income stream

PowerSeraya has the second largest licensed generation portfolio in the Singapore
electricity market with 3,100 megawatts of licensed capacity, and has a demonstrated
track record, recording steady financial performance over the past five years. The

completion of the construction of the two 379 megawatts cogeneration units in 2010
should contribute to growth and long-term stability of revenues from efficient modern
generation units.
(iv)

Promotion of a global presence for YTL Power Group

The YTL Power Group continues to seek to expand its business through local,
regional and international projects and investments which are expected to strengthen
its standing in national and global utilities industries. The proposed acquisition is
expected to play a significant role in reinforcing the YTL Power Groups profile as an
international multi-utility provider.

Risk factors
Notwithstanding the prospects of PowerSeraya and the industry in which it operates, the activities of
PowerSeraya are exposed to certain risks:(i)

Operational risks
The operations of PowerSeraya project involve certain risks, including but not limited
to, the breakdown or failure of equipment or performance of equipment at levels
below those originally projected, unexpected wear and tear or unexpected
degradation. Any of the foregoing could significantly reduce or eliminate project
revenues or increase the cost of operating the Singapore power stations including
maintenance and repair costs, hence reducing the net income and cash flow of
PowerSeraya.
These risks are, however, mitigated by PowerSerayas well established operational
track record, further supported by various accreditations it has achieved including ISO
9001:2000, ISO 14001 and OHSAS18001 certifications for its systems.
A further mitigating factor is the technical expertise of the YTL Power Group, which
has significant experience and expertise in the operation and maintenance of power
stations. YTL Power Services Sdn Bhd, a wholly-owned subsidiary of YTL Powers
parent company, YTL corporation Berhad, carries out the operation and maintenance
of the Groups two natural gas-fired electricity generating stations in Malaysia with a
total installed capacity of 1,212 megawatts, whilst P.T. YTL Jawa Timur, a subsidiary
of YTL Power, carries out the operation and maintenance of the1220 megawatts
power stations owned by the companys 35% owned asscociate, P.T. Jawa Power.

(ii)

Foreign exchange, interest rate and commodity price risks

In the event of significant depreciation of the Singapore Dollar, in which
PowerSerayas revenue are denominated, the effective value of the YTL Power
Groups share of profits as expressed or converted into Ringgit Malaysia may be
materially reduced.
Adverse movements in interest rates and fuel prices which are quoted in United
States Dollars may also materially reduce PowerSerayas earnings and consequently,
the Groups consolidated profits.
However, these risks are mitigated by hedging and/ or exchange rate agreements
which the YTL Power Group may enter into from time to time. Further, a significant
portion of PowerSerayas borrowings will be subject to interest rate hedging
arrangements.

(iii)

Political, economic and regulatory considerations

As with all other businesses, adverse developments in political, economic and
regulatory conditions in Singapore and/or any other overseas markets in which
PowerSeraya may operate in the future, could materially or adversely affect the
financial and business prospects of PowerSeraya. These includes risks of war,
changes in political leadership, expropriation, nationalization, global economic
downturn and unfavourable chane in government policy such as imposition of control
prices, introduction of new regulations and/or legislation, interest rates, taxation,
currency exchange rates and contracts. No assurance can be given that these factors
will not have a material adverse effect on the performance of PowerSeraya, and there
can be no assurance that the legal and/or regulatory environment in which
PowerSeraya operates will not change from time to time, requiring increases in costs
to be incurred by the YTL Power Group, which may result in a loss or reduction in
revenue to the YTL Power Group.
These risks are mitigated by long-term stability and maturity of Singapore economy
and its government, and the strength and transparency of Singapores regulatory
framework.

(iv)

Competition

PowerSeraya sells all its electricity outputs into the National Electricity Market of Singapore, a
competitive wholesale electricity market, and enters into bilateral arrangements
mainly relating to vesting contracts and retail electricity sales. As such, there can be
no assurance that PowerSeraya will be able to maintain its existing market position in
the future.

However, this risk is mitigated by PowerSerayas practice of entering into a high proportion of
vesting contracts and retail electricity sales which effectively help the company to
hedge a significant portion of its electricity output. Vesting contracts are contracts put
in place by the Energy Market Authority of Singapore whereby generators sell
quantities of electricity at a price set periodically by the Energy Market Authority of
Singapore at the long run marginal cost of the most efficient technology that
accounts for at least 25% of the Singapores system demand (currently the gas-fired
combined cycle plant). The vesting contract quantity is determined for each generator
based on that generators share of total installed generation capacity in Singapore.
(v)

Environmental risks
PowerSerayas business is subject to environmental legislation and regulations in
Singapore and there can be no assurance that the standard imposed by such
legislation and regulation will not change or otherwise result in increased costs or
losses of or reductions in revenue to PowerSeraya and/or the YTL Power Group. The
Singapore Powwer Stations are in compliance with the environmental requirements
set out by the Singapore Ministry or Environment and Water Resources, which sets
policy, and the National Environment Agency, which oversees enforcement.
PowerSeraya uses technologies that have been designed in accordance with
applicable international, national and regional regulations, codes, standards,
guidelines, policies and laws and also carries out an independent environmental
health and safety audit on a monthly basis.

As it is, YTL Power has projected a conservative profit contribution of RM76 million from the power
plant for FY2010. "The RM76 million profit contributions would only make up 7.3 % of FY2008 profits

compared with its cash outlay for the acquisition," says Eng to the Edge Daily. 39
This is because the full acquisition price for PowerSeraya would take up 86% of YTL Power's cash
horde of RM9.97 billion, should it pay the full amount in cash, he adds. Nevertheless, Eng says that
acquiring the power plant is a positive development for YTL Power, given that PowerSeraya is going
to be held long-term. "YTL Power will get the exposure of being a multi-utility player as well as gain
experience in a liberalised power industry before other local power players," he adds.

WAS IT THE RIGHT DECISION?

Beside success of YTL, it also has several setbacks. The proposal for a fast train between Malaysia
and Singapore was turn down by Malaysian Government. It joint partnering in developing a resort in
Koh Samui, Thailand with Lehman Brothers which now defunct need YTL to negotiate for the whole
lot.(35). Is Power Seraya will still be the cash cow for after taken over by YTL?
YTL however looking at lower number for Power Seraya in 2009 pending the interest rate by DBS
Bank. It projected 10% of FY09, 25% of FY10 and 27% of FY11 earnings from Power Seraya.(36).
Nevertheless , there should be strong earnings upside after 2010 given the expected recovery in GDP
growth and potential cost saving through efficiency gains, which YTL Power has strong track record.
As an indicated earlier, Power Seraya achieved net profit of S$218m (RM523m) in 2007 and S$133m
(RM319m) in 2008. Conservatively, Power Serayas earnings over the next 5 years could grow by an
average of 5% per annum.
Knowing Power Seraya is not the only major acquisition made by YTL Power, it prior major investment
has shown a historic. In 2002, when the Group acquired Wessex Water at 0.9x its regulated asset
base (RAB) of 1.4m, essentially, the RAB reflects the value of the underlying water and sewerage
business, as calculated by the UK office of Water Services and is based on tariffs. Today, Wessex
Water boosts a RAB of 2,114m. The consolidation of Wessex Water taken together with investments
in Australias ElectraNet and Indonesias PT Jawa saw YTL Power doubling its net profit within 3
years. The acquisitive streak allowed the Group to register a commendable five year earnings CAGR
of 19%. (37).
Although industry observers believe that YTL will reap the benefits of being a long-term investor in the
island, they caution that the conglomerate's investments there will still face serious threats, especially
since YTL group is now both a significant property and utilities player in Singapore. Will YTL be able to
rise to the occasion and silence its critics? Time will tell.
FINANCIAL PERFORMANCE
Maintaining its superior financial performance is a key for YTL to ensure shareholder trust and
confidence. After the acquisition of Power Seraya, YTL Power will still have available cash (excluding
its medium-term note of RM1.5bil) of RM800mil for new acquisitions. (Note that the Seraya deal will
mean that YTLP will need to pay RM2.7bil in cash, likely to come from the companys fixed deposit of
RM3.7bil). However, additional bonds may be raised as the group tends to maintain a comfortable
cash reserve to take advantage of any attractive acquisitions, especially given the ample opportunities
presented in the ongoing global financial meltdown.
Post acquisition, YTLP has RM3.2b short term debt due for refinancing over the next 12 months.
About RM2.0b of this debt is related to Wessex Water and refinancing risk should be low given
Wessex Waters strong operating cashflow and resilient earnings. Overall, YTL Power boasts a
healthy balance sheet, with RM7b gross cash after the Power Seraya acquisition and potentially an
additional RM1b cash from conversion of its 2010 outstanding warrants A, expiring Aug 2010. The
strengths of its balance sheet should enable YTL Power to invest further and continue its strong
growth trajectory into the future.
Apparently, YTL Power has recently submitted a proposal for a 450MW Bibiyana gas-fired power plant
project in Bangladesh. The Bibiyana independent power plant project will be in production by 2013 or
2014, on a build-own-operate basis. YTLPower is one of the seven bidders and the outcome of it is
likely to be known in June 09. The bid is in line with YTL Powers plan to continue to bid for regulated

assets given its strong gross cash holdings of RM7b after Power Seraya acquisition. Assuming a
project cost of RM3m per MW, this venture could cost RM1.4b, which will be funded mostly by nonrecourse project loan. YTLP has indicated earlier that they are only keen on new acquisitions with IRR
of more than 10%. Given the groups proven track record of earnings accretive, asset acquisitions will
help support its long term growth.

CHALLENGE AHEAD
YTL Power believes that its acquisition of Power Seraya is a good deal and is very upbeat on the
acquisition. More importantly, the deal is expected to pave the way for YTL Power to embrace the
liberalised power market, a departure from the PPA system for its local power plants. This will
enhance the groups power generation business and put it in a competitive position if the Malaysian
government decides to open up the local power sector. Power Seraya with the electricity generation
license by the Energy Market Authority of Singapore (EMA) for a 30-year period to 2032, while its
subsidiary Seraya Energy Pte Ltd, holds a 10-year retail electricity license to sell and trade electricity
in the National Electricity Market of Singapore (NEMS).
With subdiaries, Seraya Energy Pte Ltd, which provides energy solutions to contestable customers in
Singapores NEM and has a market share of 28% in the contestable Retail Market. It is also the
investment arm of the group. Another subsidiary PetroSeraya Pte Ltd, which has been set up under
Seraya Energy Pte Ltd, plays a key role in managing the Groups fuel purchases. It is the physical oil
trading arm of the group and has been set up to improve the groups fuel procurement, cut risks and
improve the value of its fuel stock.
YTL Power is also positive on Wessex Waters operations in Britain despite the depreciating pound
sterling and the compression in equity values for water companies in Britain. This is because Wessex,
the most efficient water & sewerage operator in Britain, is likely to clinch a higher tariff rate revision
compared to its peers. Also, the group hopes to leverage on Wessexs proven expertise to provide
solutions to Malaysia water treatment system.

(%)http://www.ytlcommunity.com/annualreport/pdf/YTL%20Cement%20Berhad_Annual%20Report
%202008.pdf
(*)http://www.ytlcommunity.com/commnews/shownews.asp?newsid=2246
(#) YTL 2008 Annual Report
(^)http://www.ytlcommunity.com/annualreport/pdf/YTL%20Land%20%20Development
%20Berhad_Annual%20Report%202008.pdf
(&)http://www2.themalaysianinsider.com/index.php/business/27551-ytl-scion-fosters-faith-basedculture-in-business
(!)http://www.ytl.com.my/property.asp
(qq) http://www.ytl.com.my/technology.asp
(1) Last Laugh, Lan Anh Nguyen, 05.28.09, 06:00 PM EDT Forbes Magazine dated June 08,
2009.
(2) Empire builder: Tan Sri Francis Yeoh, Darshini M. Nathan BizWeek, The Star Saturday
February 10, 2007.
(3) http://www.ytl.com.my/aboutus.asp .
(4) http://www.ytl.com.my/getnews.asp?newsid=12843.
(5) Electricity Commission website, http://www.st.gov.my/Overview.php (Out of total generation
capacity of 15,121 MW owned by the IPP and the three utilities in 2002, the IPPs
contributed 6,031MW (40%).)
(6) The IPP Investment Experience in Malaysia, Jeff Rector, Working paper #46, August
17,2005.
(7) Ibid (6)
(8) In August 1997, immediately before the impact of the Asian financial crisis hit, Energy,
Telecommunications and Posts Minister Datuk Leo Moggie announced that the then current
national demand capacity was 12,000 MW, while peak demand was 8,200 MW. Agency
Says Power Production Enough to Meet Demand Up to Year 2000 Bernama Malaysian
National News Agency, Aug. 22, 1997; See report on Tenaga Nasional, International
Country Risk Guide Asia and the Pacific, Apr 1, 1997 (Malaysia already has an electricity
reserve of about 50%).
(9) World Markets Research Center, YTL and TNB Fail to Agree Rates for Power Project, Oct.
20, 2003 (YTL has pulled out of the planned Jimah coal-fired power project after failing to
secure a satisfactory tariff agreement with state-owned Tenaga Nasional Berhad (TNB). YTL
was awarded a contract to build the plant in 2001, but has subsequently been locked in
negotiations with TNB over the tariff structure.).
(10) S. Jayasankaran, Power Politics, Far E. Econ. Rev., 8/20/98.
(11)Struggle Over Power Prices in Malaysia Financial Times, Oct. 26, 1998, p. 4; See Analyst
Report: Malakoff Berhad, Kim Eng Securities, December 4, 1998.
(12)Malaysian Business Feb. 1, 2004, page 23.
(13)Other accounts of the experience come to the opposite conclusion. Witold J. Henisz and
Bennet A. Zelner, The Political Economy of Private Electricity Provision in Southeast Asia,
A Working Paper of the Reginald H. Jones Center, The Wharton School University of
Pennsylvania (2001-2002).
(14)Risen Jayaseelan, Current Affairs, Malaysian Business, Dec. 16, 1999.
(15)Ibid(6)
(16)Ibid(2)
(17)http://www.ytl.com.my/utilities.asp
(18)http://www.ytl.com.my/getnews.asp?newsid=12843
(19)Ibid(18)
(20)Ibid (18)
(21)Ibid(18)
(22)Press release by Baker & McKenzie :Singapore, 3 November, 2008 Baker &
McKenzie.Wong & Leow has advised YTL Corp on the largest Singapore REIT M&A deal to
date
(23)http://www.ytlcommunity.com/commnews/shownews.asp?newsid=44426

(24)APEC Energy Overview-Singapore

(25)YTL Mulls Acquisition Of Power Plants In Singapore ,Business Week, Dec 10,2007,
(26)http://www.bloomberg.com/apps/news?pid=20601072&refer=energy&sid=a4p5cGly8I1s
(27)Ibid (26)
(28)Ibid (26)
(29)http://www.chinadaily.com.cn/bizchina/2008-03/15/content_6539165.htm
(30)Japan-led consortium buys power firm Temasek- International Business-News-The
Economic Times. 5 Sep 2008, 1615 hrs IST, AGENCIES
(31)KHAN M&A 2nd Dec 2008-Malaysias YTL Power to Buy Temaseks PowerSeraya Bloomberg.
(32)Ibid(18)
(33)Ibid(1)
(34)http://www.ytl.com.my/getnews.asp?newsid=44440
(35)Ibid(1)
(36)http://investment-research.biz/ytl-power-2qfy09-lost-in-translation.html
(37) Analysis by Affin Investment Bank
(38)The Straits Times. November 25, 2008 Tuesday. http://www.straitstimes.com/Breaking
%2BNews/Singapore/Story/STIStory_306671.html
(39)The Edge Daily, December 8, 2008.
(40)http://www.ytlcommunity.com/commnews/shownews.asp?newsid=42614
(41)http://announcements.bursamalaysia.com/EDMS/Annweb.nsf/all/482568AD00295D07482575
13004306BB/$File/YTL%20Power%20Int%20-%20Announcement%20on%20PowerSeraya.pdf
(42)

Appendix______