This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

YTL Power International Bhd’s emergence as a major shareholder with an 18.87% stake in Ranhill Utilities Bhd has turned the spotlight on its chairman and chief executive Tan Sri Hamdan Mohamad.

Hamdan is the founder of Ranhill group and has always been in control of it since it took over the listing status of Symphony House Bhd in December 2015. As at Sept 13, Hamdan held the lion’s share of the group with a direct and indirect shareholding of 31.42% in it with its water and electricity concession assets.

According to Ranhill Utilities’ 2022 annual report, the next largest block of shares, amounting to 18.87%, is held by TAEL Management Co. TAEL is the private equity firm that had funded Hamdan during the privatisation of Ranhill Bhd and Ranhill Utilities Bhd more than 10 years ago.

YTL Power acquired TAEL’s block of shares last week at an estimated 58 sen apiece. But TAEL’s exit comes as no surprise. A month ago, there were reports of the company floating the shares on the market in order to leave Ranhill Utilities.

“TAEL wanted to reduce its stake during the listing of Ranhill Utilities in late 2015 through an offer for sale (OFS). But that was not successful. So its exit now comes as no surprise, although the price it had sought at the point of Ranhill Utilities’ listing was much lower,” says an investment banker.

Initially, Ranhill Utilities wanted to list at RM1.70 per share. During the listing, TAEL was to dispose of 100 million shares and reduce its interest to 8.6%. The OFS would have seen TAEL receive RM170 million and still remain a substantial shareholder of Ranhill Utilities.

However, during the reverse takeover (RTO), Ranhill Utilities’ shares were taken up at a reduced price of RM1.20 each. Consequently, TAEL’s OFS exercise did not happen.

In the disposal last Wednesday, TAEL is estimated to have received RM140 million — based on the shares sold at 58 sen each — for its 18.87% block.

“It is no surprise that YTL Power is the buyer as it is already in the utility business. And the valuation of its entry at 58 sen is relatively cheap compared to Ranhill Utilities’ listing price of RM1.20. Moreover, Ranhill Utilities has grown over the years,” says the investment banker.

The founders of TAEL were previously with Singapore-based UOB group. Incidentally, the third largest block of 9.1% in Ranhill Utilities is held by UOB Kay Hian Pte Ltd, followed by 9.07% by the Johor state government.

Given that YTL Power, whose core businesses are power generation, water and sewerage, and telecommunications, has never remained a minority shareholder in its local acquisitions, market watchers and analysts are anticipating that it will not stop at just 18.88% in Ranhill.

Sources say as the YTL group had previously had a partnership with Johor royalty, it is likely that the two parties will team up to form a controlling bloc in Ranhill.

“After disposing of the stake to YTL Power, TAEL has less than 2% in Ranhill Utilities. Combined with UOB’s 9.1%, there is still a substantial block that YTL Power could buy if it decides to strengthen its position,” says a market watcher.

YTL Power, with its healthy cash balance also has the balance sheet strength to increase its stake in Ranhill Utilities. Based on its latest quarterly results, it is sitting on a cash pile of close to RM9 billion.

“YTL Power has the clout to take over Ranhill Utilities. The only question is whether Hamdan is prepared to sell and at what price. Or would they work together, which is an unlikely scenario,” remarks an investment banker.

Following YTL Power’s acquisition, Ranhill’s share price shot up 34.5% to 78 sen in just two days after the news broke, valuing the latter at RM1.02 billion.

Analysts say since YTL Power’s stake still stands below the 20% threshold, no impact is expected on its earnings at this point, barring any intention to increase its stake or the emergence of any strategic venture with Ranhill.

“Our quick channel checks suggest this is a strategic investment decision for YTL Power as it sees good assets in the Ranhill group, such as its exclusive rights to the Johor water supply and its exposure in the Sabah power sector. Ranhill has been building exposure in the renewable energy (RE) sector via its soon-to-be-operational 50mw LSS4 plant and is actively looking to expand its presence in this space.

“YTL Power is [also] building its presence in Johor and RE via its upcoming 72mw data centre (Phase 1) and 500mw solar farm in Kulai, indicating interest to participate in RE exports to Singapore, pending finalisation of the RE export framework by the government. The entry of a multinational utility company such as YTL Power into Ranhill speaks volumes about the value in the latter,” says MIDF, affirming its “buy” calls on Ranhill and YTL Power with target prices of 80 sen and RM2.45 respectively.

CGS-CIMB Research points out in a Nov 2 report that while the acquisition price works out to about three times enterprise value/­earnings before interest, tax, depreciation and amortisation and a free cash flow yield of 12%, the key challenge may be for YTL Power to increase its stake meaningfully to equity account ­Ranhill’s earnings.

The bulk of YTL Power’s RM21 billion revenue for the financial year ended June 30, 2023, came from Singapore (74%), followed by the UK (4.4%), Malaysia (3%) and other countries (3%).

YTL Power owns water and sewerage provider Wessex Water Ltd in the UK, and electricity producer YTL PowerSeraya Pte Ltd in Singapore.

In Malaysia, YTL Power owns a 60% stake in YTL Communications Sdn Bhd, while new businesses include the development of a 500mw solar power generation facility in Kulai, Johor, and green data centres in Malaysia and Singapore. 

Ranhill’s businesses span three sectors — environment, energy and engineering services, accounting for 65%, 15% and 20% of the group’s revenue, respectively, in the first half of 2023.

Ranhill is the sole water supplier in Johor and owns water treatment facilities in Thailand and China. It also  owns and operates two gas-fired power plants in Sabah. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.