Malaysians buy out YNN partners

Malaysian power utility firm Ranhill Bhd plans to cough up more than $230 million to take control of the Masinloc power plant in Zambales.

In a Reuters report from Kuala Lumpur yesterday, Ranhill said that it had bought out its partners in the YNN Pacific Consortium Inc., which successfully bid $561.7 million in December 2004 for the 600-megawatt coal-fired plant.

Ranhill said it had paid only $8 million to buy out YNN, but the move now leaves Ranhill responsible for making the initial $227 million payment to the Philippine government for the Masinloc plant.

The $227-million payment must be made by June 30, Ranhill said, adding that it would also need to contribute $3 million in working capital into YNN, which will run the plant.

YNN must settle the remainder of its $561.7 million bid for the Masinloc plant over the next seven years, through 14 equal semi-annual payments, at an interest rate of 12 percent.

"Ranhill may be required to advance additional funds to YNN in the future, the quantum of which can only be determined later," the company said.

It would fund the $8 million acquisition price, the $227 million initial payment and the $3 million in YNN working capital from internal funds or borrowings, the firm added.

The government had planned to sell some 31 power plants by the end of last year, but political instability and investor doubts about profitability in the sector meant it failed to sell any in 2005.

The plants, with rated capacity of 4,335 megawatts, account for about one-third of total Philippine generating capacity. Just six of them have been sold, or 11 percent of the targeted generating capacity for sale.

National Power Corp., is banking on raising $4 to $5 billion from the sale of its plants and by leasing its electricity grid to cut its debts, which are equivalent to about a third of the country’s annual gross domestic product.

YNN spokesperson Gary Makasiar said the consortium is currenty conducting a roadshow to raise fund for the downpayment.

"We are talking with European and American banks for financing. Ranhill is now the majority owner of the consortium. We do not want to lose the $14 million bond so we are trying as much as we can to come up with the downpayment," Makasiar said.

In end-December 2005, PSALM had asked YNN to deliver by mid-January 2006 the $11.14 million performance bond which would be effective until August 2006.

YNN complied with the requirement in January. With the entry of the Malaysian firm and a new payment deadline set, the consortium was given a higher performance bond of $14 million.

The performance bond serves as a guarantee that the consortium would not renege on its obligation to pay the upfront payment of $227 million on or before the June 30 deadline (from the original March 31) and later on settle the balance of $334.7 million to complete its winning bid of $561.7 million for the Masinloc facility.

"We believe that the additional $3 million performance bond is enough indication of YNN-Ranhill’s seriousness to push through with the deal. It is also sufficient protection for government’s interests in the next three months," PSALM president Nieves Osorio said earlier.

According to Osorio, the government has decided to extend the delivery of the upfront payment following a meeting with YNN officials and Ranhil president and chief executive officer Tan Sri Hamdan Mohamad.

Osorio said they expect Ranhill and YNN to complete within the three-month extension all financial arrangements relating to Ranhill’s investments in YNN.

Ranhill has tapped ABN-AMRO for its fund raising requirement. It is also talking with the Private Sector Operations Department of the Asian Development Bank (ADB) for project refinancing and possible equity investment.

Osorio said International Finance Corp., the investment arm of the World Bank, has also expressed keen interest to extend financial assistance to Ranhill in case it wants to extend the capacity of Masinloc in the future.

The proposed acquisition of YNN Pacific by Ranhill is in tandem with the Malaysian firm’s corporate vision of increasing Masinloc’s generation capacity to 1,000 MW by 2009.