Malacca plant may be part of Edra’s IPO

by **Cals** Mon 11 May 2015, 02:09

Malacca plant may be part of Edra’s IPO

Saturday, 9 May 2015
By: RISEN JAYASELAN

THE latest twist in the plans to list Edra Global Energy Bhd is that it will likely exclude the not-so-lucrative Project 3B (a 2,000MW coal-fired power plant project) and entail an earlier start of the 2,400MW power plant in Malacca that had been awarded to Edra’s parent 1Malaysia Development Bhd (1MDB) last year, source say.
Project 3B is being handed to Tenaga Nasional Bhd (TNB), something which had been speculated for some time, while Edra is fast tracking the 2,400MW plant in Malacca by working with its consultants to churn out the request for proposals for parties to work on building the new plant. TNB and 1MDB did not respond to questions from StarBizWeek.
The move does make sense. Project 3B, in which Edra has a 70% stake, has an indicative internal rate of return of only 6%, while the Malacca plant carries a project IRR of 10%, sources say.
It isn’t clear how this move will boost Edra’s attractiveness as an initial public offering (IPO) candidate. What is clear though is that following the successful sale of Malakoff Corp Bhd shares for its IPO, it is no surprise that there is renewed optimism for Edra’s flotation on the local bourse.
The question is whether these assets are comparable with each other. Can the Malakoff example predict the outcome of Edra Global’s IPO?
On the face of it, there are similarities. Both are power companies with existing power plants – Malakoff’s net generating capacity is 6,036MW while that of Edra is 5,600MW. Both have a growth story of starting or buying into new power plants.
To be noted is that the Malakoff IPO didn’t start off being such a big success and for that matter, it will only get listed on the market later this month. The positive that has transpired is that the institutional portion of the IPO had been oversubscribed by 13 times. Recall though that the plan to list Malakoff dated as far as 2012. It had been delayed several times, partly because of unscheduled maintenance work at its Tanjung Bin plant in Johor.
When its latest listing process went into overdrive earlier this year, the IPO received lukewarm response in the beginning, those familiar with the process say.
Part of the concerns included its high debt levels and whether the technical problems at its Tanjung Bin plant would surface again.
Clearly, these issues did not deter institutions from queuing up to bid for Malakoff’s shares. But a few issues have worked in Malakoff’s favour, say insiders.
For one, the dearth of IPOs in the local market meant that investors did not have many choices for new listings. Second and more importantly was that Malakoff went to market promising a dividend yield of 4.6% for 2016. This, sources say, is what really got investors piling into Malakoff’s shares. Even some foreign investors, who have been jittery about the value of the ringgit, were attracted to this yield, considering for example, the increasing pool of negative yielding sovereign bond in Europe.
In Edra’s case, sources say that it had initially planned to list at a value that offers an estimated 2016 dividend yield of between 2.5% and 3.5%. It isn’t clear if the removal of Project 3B and the fast tracking of the 2,400MW power plant in Malacca would impact this yield offering by Edra.
The other valuation benchmarks set by Malakoff’s IPO were: at its IPO price of RM1.80, Malakoff was sold at an estimated yield of 3.5%, dividend yield for the financial year 2015 (to grow to 4.8% in FY2016) and an enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) of 8.9 times, based on an EV of RM21.9bil.
Another key indicator on how well Edra’s listing would be received by the market will be the post listing performance of Malakoff’s shares and hence all eyes will be on that.