Potential buyers includes TNB (Malaysia), YTLPower (Malaysia), Intergen (US) and Tokyo Eletrical (Japan).
YTL Power strong presence in regional operations and its' piled up cash reserves are very encouraging in acquiring the power plants.
However it should be noted that all the power plants in this context already reached their output capacity and thus their revenues are capped within a forecasted range. The buyers will focus on the ROI instead.
I call a BUY on YTLPower on a target price of RM3.00, a potential 25% upside based on the closing price of RM2.39 yesterday.
By Audrey Tan, Assistant Money Editor
Temasek Holdings will sell its three power generation companies (gencos) over the next 12 to 18 months in the biggest sale of Singapore's power assets since the liberalisation of the domestic energy market.
The three gencos - PowerSeraya, Senoko Power and Tuas Power - together account for 80 per cent of Singapore's power-generating capacity.
Each of the three gencos is worth about $2 billion, market estimates suggest.
All three companies are profitable, and both local and foreign potential buyers have expressed interest in buying the companies.
Temasek said in a statement yesterday that it was now 'timely' to sell its stakes.
Mr Wong Kim Yin, Temasek managing director of investments, said: 'We have seen a lot of interest from potential buyers since last year. At the same time, the Singapore economy is poised to grow strongly over the next few years.
'The conditions are conducive for the divestment of the gencos.'
Temasek is still open on how it will sell the three companies.
However, it is more inclined to sell them through a tender process, rather than through a public listing as some market watchers had expected.
It is also likely to sell the companies one at a time, rather than all at once.
A direct sale through a tender means that Temasek would not have to hold any residual stake in the gencos, which it may have to if it listed the companies.
'A straightforward sale through a tender will better meet the objectives of creating a liberalised electricity market in an orderly fashion,' Temasek said.
There is no limit on foreign ownership of the companies, although there are restrictions on the three gencos holding stakes in each other.
This long-anticipated sale comes after years of progressive steps to liberalise Singapore's previously state-dominated energy market.
Tuas Power was carved out of the Public Utilities Board in 1995, and Senoko Power and PowerSeraya from Singapore Power in 2001.
Ownership was transferred to Temasek, on the understanding that it would eventually sell all three companies.
The aim was to introduce competition into the contestable parts of the energy market, such as retail and power generation.
Privately owned gencos should support a competitive market that can expect more players as Singapore's power needs grow, the Government said when announcing the changes in 2000.
Besides the three Temasek-owned gencos, the other gencos in the market are SembCorp Cogen and Keppel Merlimau Cogen.
United States-owned Island Power is also building a $1 billion power station on Jurong Island.
However, its project has been delayed for years as it has been unable to bring in its own gas supply through the Sumatra-Singapore gas pipeline.
But recent amendments to the Gas Act gave the regulator, the Energy Market Authority, the power to open the national gas pipeline grid to all players.
Temasek yesterday also pointed to this regulatory change as a reason for the timing of its divestment.
The regulatory framework governing competitive wholesale supply of gas and power is now complete, it said.
'These developments have set the stage for a competitive, yet stable, power generation market to operate in Singapore,' Mr Wong added.
Over the past few years, Temasek has organised the gencos into three independent firms, each with its own board and management, he said.
Market watchers say that because the gencos have operated independently of each other, a change of ownership should not affect electricity prices.
Latest publicly available data shows that in its last financial year, PowerSeraya made a $129.7 million profit. It has a licensed capacity of 3,100MW and offers retail services through a subsidiary, Seraya Energy.
Profits for Senoko Power were $131 million in its last financial year. The genco has generation assets totalling 3,300MW and has a retail arm, Senoko Energy Supply.
Tuas Power, which owns assets totalling 2,670MW, made $177.2 million in profits in its latest financial year. It also has a retail arm, Tuas Power Supply.
Morgan Stanley and Credit Suisse are the financial advisers for the divestment, which is expected to begin in the second half of this year.
The entire process should be completed by the end of next year or early 2009.
Separately, the union that represents workers in the three gencos has put out a reassurance.
In a statement late last night, the Union of Power and Gas Employees said it recently concluded collective agreements with the gencos that will be binding on the new owners for the next three years.
'Workers' interests under the existing terms and conditions of the collective agreements will thus be safeguarded in the event of any sale,' it said, adding that if there were to be any layoffs, the union will ensure that workers are compensated fairly.
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