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November 26, 2008

Market turmoil sees Temasek delay power firm sale

Singapore's state investor Temasek Holdings [TEM.UL] said on Tuesday it has postponed the sale of its fully-owned electricity generating firm PowerSeraya, a deal that may have fetched over $2 billion, reported Reuters.

The delay, amid market turmoil that has dampened deal-making globally, came on the same day when the world's top miner BHP said it was dropping its proposed $66 billion hostile takeover of Rio Tinto.

"We launched the tender process early last month based on indications of interest from investors. In light of the market conditions, we have decided not to proceed further," Gwendel Tung, director of investment at Temasek, said in a statement.

PowerSeraya is the third of three power companies that Temasek is selling as part of efforts to liberalise the city-state's electricity market. It sold the other two earlier this year for a total of S$7.9 billion ($5.24 billion).

PowerSeraya's plant has a capacity of 3,100 megawatts (MW) and provides about 28 percent of the city-state's electricity. Its capacity will rise to 3,900 MW by 2010 as it is in the process of building an 800 MW capacity natural gas-fired plant.

Bahrain's Arcapita, Malaysia's YTL Corp  and a consortium led by Hong Kong's CLP had been named as potential bidders for PowerSeraya, according to media reports. Analysts said the deal may have been hit by turmoil in credit markets, which has raised borrowing costs for companies, and a sharp slowdown in Singapore's economy.

"The power demand forecast for Singapore would have to be now significantly lower from what it was when they had set up the deal," said Simon Powell, a power analyst at CLSA in Hong Kong.

Singapore's economy slipped into a recession in the third quarter and the government said the economy could contract in 2009, amid the worst global financial crisis since the 1930s.

Powell said Singapore's power demand will be hurt by a sharp slowdown in manufacturing activity and oil refining operations.

Temasek said it remained committed to divesting all power companies in Singapore. "We are flexible as to how and when we will revisit the divestment of PowerSeraya," Tung said.

Banking sources had said Temasek would have likely offered "staple financing" through banks for the sale of the project similar to the one it offered for the sale of Senoko Power.

Senoko was sold to a consortium led by Japanese trading house Marubeni Corp  for $2.5 billion in early September, while Tuas Power was sold to Chinese power firm Huaneng Group for $3 billion in March.

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