14 April 2010

Generating Companies - Sale or IPO?

A managing director of Temasek Holdings reportedly suggested that companies engaged in the business of providing power infrastructure could consider tapping Singapore's under-utilised capital markets.

Operational assets that generated stable cash flow (e.g., SP PowerGrid, which manages the electricity and gas transmission and distribution networks) could be put in business trust offerings on SGX.

But, didn't Temasek sell its entire interest in three power generating companies — Power Seraya, Senoko Power and Tuas Power — in 2008, instead of listing them on SGX?

Taking a company through an initial public offering possibly would have required more effort, but the offerings (if they had taken place) would have benefited the country in other ways.

At their combined sale price of $11.5 billion, the three companies would have added breadth to the Singapore capital markets.

In addition, they would have given investors a rare opportunity to invest in companies that had a risk profile quite different from the risk profiles of other companies listed on SGX.

They would have appealed to investors looking to invest in companies with a steady cash flow.

Timing was unlikely to have been a concern.  As a long-term investor in the three companies, Temasek could have waited a little while longer for the right time (if 2008 was not right for an initial public offering) to dispose of its interest at the right price.

Even if Temasek wanted or needed to raise cash urgently to invest elsewhere, it could have borrowed the funds quite inexpensively, given its strong credit rating.

It's a pity Temasek did not dispose of its power generating companies via an initial public offering.