Saturday August 4, 2012
All will reap from YTL Power’s privatisation
By LIZ LEE
If YTL Power were delisted through a share swap like in the case of YTL Cement last February, and analysts believed management would use the same method, the Yeoh family would be able to preserve the cashflow and stakeholding in the conglomerate.
“When they delisted YTL Cement, there was not a lot of cash outflow because it was done through a share swap,” an analyst said. He added that since the price-earnings ratio was higher for YTL Corp, management would issue less YTL Corp shares for the swap, which would be “beneficial to the Yeoh family as their equity stake would not be diluted.”
Under the same circumstances, he said the privatisation would also mean a windfall “more so for YTL Corp shareholders than YTL Power shareholders.”
“While YTL Power shareholders will be switching from lower to a higher-value stock, their stake will get diluted with less shares in YTL Corp,” he said.
As to why YTL Power is the potential candidate, he said that delisting the power subsidiary was most strategic as the privatisation of other subsidiaries would not “make an impact” on the parent company.
“The other subsidiaries only have market capitalisation of about RM1bil to RM2bil compared with the approximately RM20bil market capitalisation of YTL Corp, so if they were delisted, the move would not add much earnings to YTL Corp,” he explained.
To recap, a report revealed that Tan Sri Francis Yeoh intended to delist more listed subsidiaries under YTL Corp to distribute more cash and dividends to shareholders.
Although he did not specify which listed company was likely to be taken off the market, analysts covering the conglomerate said it would be “most sensible to privatise YTL Power as it is the most cash-rich.”
ECM Libra analyst Benjamin Lee noted: “Once privatised, the Yeoh family would have full access to YTL Power's earnings and dividends.” The family currently has 55% stake in YTL Corp.
And although he believed that the management would only offer a slight premium for the share swap, “at the end of the day, the Yeoh family will try to create a win-win situation for their shareholders.”
“If privatised, I would increase my valuation of YTL Corp's share price as I see more upside and market will react positively,” he said.
However, he said some analysts thought that it might not be that easy to take YTL Power private as the management might have to issue more shares than intended and it would depend on shareholders' approval.
He explained that the nature of the power business would guarantee margins of profit which in turn contribute to dividend payouts, in line with the management's intention to step up dividend renumerations.
He added that YTL Power alone had issued RM680mil worth of dividend payout while all of YTL Corp's subsidiaries had collectively issued more than RM1bil dividend in the last financial year.
As for Yeoh's reported intention to acquire assets overseas, an analyst said it was difficult to speculate at this point as there was no indication yet.
However, he believed that any company or asset Yeoh took over or acquired would be utilities based.
“Based on track record, they have been pretty good on the merger and acquisition front as they have added value to their acquisition of Wessex Water in the UK and Power Seraya in Singapore.”