YTL Power International Bhd has been a relatively lacklustre counter for investors. Between the sluggish take-off of its mobile broadband network, YES 4G, and the stark absence of new power projects, the group lacks a growth story compelling enough for investors.

The expiry of its first-generation independent power producer (IPP) projects in September 2015 did not help either. Despite its name, YTL Power sees relatively little earnings from power generation. Instead, the bulk of it comes from Wessex Water, its water utility arm in the UK.

The good news is that YTL Power expects to turn the corner, but it will take another three years to do so.

Last week, the company announced the successful financial close of its US$2.1 billion power venture in Jordan’s Attarat Power Company.

YTL Power will have a 45% stake in the 554mw (gross capacity) oil shale-fuelled mine mouth power plant project. China’s Guangdong Yudean Group Co Ltd will have 45% equity interest while Estonia’s Eesti Energia AS will hold the remaining 10% stake.

The financial close is a major milestone for the project, which has been in the works as far back as 2008. YTL Power only became involved in 2011. With the financing in place, construction is expected to begin later this year and conclude in late 2020.

This is also a major breakthrough for YTL Power — Attarat is its first major international greenfield power project.

The last time the group expanded its energy portfolio was when it paid S$3.8 billion to acquire the 3,100mw PowerSeraya in Singapore from Temasek Holdings Pte Ltd.

However, power generation in Singapore’s competitive merchant market proved to be far less lucrative for YTL Power than the sweetheart take-or-pay terms enjoyed by its Malaysian IPP.

So, how will Attarat fare?

A key selling point of the project is that it is entirely denominated in US dollars.

“Where else can you find a 30-year concession project that is in US dollars?” YTL Power executive director Yeoh Seok Hong points out.

“When we first began negotiating for this power plant, the exchange rate (ringgit versus US dollars) was only 3.10. Today, it is around 4.45,” he says.

On top of that, Yeoh guides that Attarat is expected to generate an internal rate of return (IRR) in the mid-teens. This does not include the IRR of the oil shale mining operation that accompanies the plant.

Assuming a modest 5% IRR for the mining operation, the entire project looks to be highly lucrative for YTL Power.

Based on a total IRR of 20%, a back-of-the-envelope calculation shows that YTL Power’s share of the earnings will be around US$47 million a year. This is based on the 25:75 equity-to-debt ratio for the project, which works out to be a US$236 million equity investment from YTL Power.

The project is also attractive from a risk perspective. After all, it is fully guaranteed by the Jordanian government.

“There are already four other IPPs in Jordan. They have the track record and the framework for it. In fact, Jordan is a former British colony like Malaysia and its legal system is based on English common law as well. It is something we are familiar with,” says Yeoh, who is confident of operating in the foreign environment.

It is interesting to note that Attarat will be built by Chinese engineering, procurement and construction (EPC) contractor Guangdong Power Engineering Corp. This reduces YTL Power’s exposure to the execution risk.

Furthermore, oil shale-fuelled power plants involve proven technology, Yeoh points out.

“The boiler will be from Foster Wheeler, while the steam turbines will be supplied by Siemens. WorleyParsons will do the engineering and design,” he explains.

Meanwhile, the debt financing of the project will be provided by Chinese banks — China Construction Bank and Export-Import Bank of China. China Export & Credit Insurance Corp (Sinosure) is insuring the financing.

“The financing is only for 15 years. This includes about four years for construction. That means this project will be able to pay off the debt in about 11 years. After that, everything will be free cash flow,” explains Yeoh.

YTL Power will, in turn, look for ways to unlock value for shareholders using the predictable cash flow from Attarat — perhaps via debt refinancing or by monetising equity, he says.

“The important thing is that we are building a name for ourselves with this project. This will allow us to go abroad and look for more power projects to develop,” Yeoh remarks.

In other words, Attarat is only the first of more projects to come.

YTL Power is currently working towards financial close for Tanjung Jati, its 1,320mw coal-fired power plant in Indonesia. The plant has an estimated cost of US$2.7 billion.

However, until these new power plants are completed, YTL Power may continue to struggle to capture investors’ interest.

Its loss-making mobile broadband business does not help matters. Revenue for the segment may have improved in recent quarters but profit looks a long way off.

When asked about YES 4G, Yeoh simply says, “Be patient, we have plans for it.”

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