This article first appeared in The Edge Financial Daily, on January 18, 2016.

KUALA LUMPUR: Sarawak Cable Bhd (SCable), a company controlled by the family of Sarawak governor and former chief minister Tun Abdul Taib Mahmud, is in talks with a local privately held firm over the potential sale of its loss-making helicopter service unit, as part of plans to reduce its gearing level.

Its group managing director and chief executive officer Aaron Toh Chee Ching expects to wrap up the negotiations within the next six months.

“The helicopter service business has been [a financial] burden and has been bothering us. As such, our top priority this year will be the disposal of the non-core asset — Aerial Power Lines Sdn Bhd (APL),” he told The Edge Financial Daily in an interview.

APL, a wholly-owned subsidiary of SCable, was specially incorporated to manage and operate helicopters for power line operations and other related aviation businesses. Currently, the company’s fleet comprises three helicopters, with an option to purchase three more.

Toh said SCable’s second priority in 2016 is to find equity investors to help finance its mini hydropower plant projects in Indonesia.

The integrated transmission line and power cable manufacturer is currently in talks to rope in a Singapore-listed construction company for a potential stake sale of its mini hydro plants there.

SCable holds a 20-year power purchase agreement to supply electricity to Indonesia’s national utility company Perusahaan Listrik Negara (PLN) via its 11mw Kombih III hydro plant in North Sumatra, and it plans to develop another two mini hydro plants (10mw each) there.

“The Kombih III hydro plant is 100% owned by us, [and] so, we are looking to sell up to [a] 20% stake in the Indonesian project to boost its capital levels, as well as to help reduce our parent group’s gearing,” Toh said.

“We expect both plans (sale of APL and finding equity investors for its hydro power plant projects) to materialise, the sooner the better,” said Toh.

Meanwhile, Toh said the commissioning of the Kombih III hydro plant had been delayed from March to May, due to construction delays associated with the wet season.

“We expect to start selling electricity in June,” he added.

Based on the average tariff rate offered by PLN, which is 35 sen per kWh, Toh estimates that the internal rate of return of the Kombih III hydro plant is 26%, with an expected pre-tax profit contribution of between RM20 million and RM22 million per year.

“The potential partner has also shown its interest [to take up stakes] in the other two plants (lined up), whose development cost is about RM80 million each,” Toh said.

SCable on Jan 8 proposed to undertake a private placement of up to 10% of its issued share capital to raise up to RM53.9 million, which is expected to reduce its gearing ratio from 1.7 times to 1.2 times by the end of the current financial year ending Dec 31, 2016 (FY16).

As at end-December 2015, SCable’s bank borrowings amounted to RM593.2 million.

SCable, whose largest shareholder is Datuk Seri Mahmud Abu Bekir Taib, son of Abdul Taib, with an 18.24% stake, also hopes to increase institutional participation in the stock. Sarawak’s state-owned Sarawak Energy Bhd has a 16.53% stake in SCable.

“We prefer a liquidity of about 40%, but we are below 30% now. That’s why SCable’s major shareholders have been paring down their interests since November last year,” said Toh, adding that two US-based funds had shown their interest in taking up SCable shares through its private placement.

He also noted that the group will announce the appointment of two new board members soon.

“With all these plans in place, it (target gearing ratio of 1.2 times) would not be difficult to achieve. We should be able to find some relief in the second half of next year,” he added.

Toh also said SCable had tendered for transmission line projects worth RM1 billion and expects to secure at least half of them in FY16.

The group’s net profit for the nine months ended Sept 30, 2015 (9MFY15) jumped 10-fold to RM28.36 million from RM2.73 million in 9MFY14, while revenue grew more than four times to RM1.03 billion from RM246.17 million. The marked improvement was attributed to the acquisition of Leader Cable Industry Bhd and Universal Cable (M) Bhd that was completed in December 2014.

SCable shares closed three sen or 1.71% lower at RM1.72 last Friday, bringing it a market capitalisation of RM545.33 million.