Malakoff to acquire PD Power from Sime Darby

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KUALA LUMPUR: Malakoff Corp Bhd, a 51% owned subsidiary of MMC Corp Bhd, has entered into agreements with Sime Darby Bhd to acquire the latter’s 75% stake in Port Dickson Power Bhd (PD Power) and 100% stake in Sime Darby Biofuels Sdn Bhd for a total cash consideration of RM300 million.

As Malakoff already owns 25% of PD Power, the acquisition will give it 100% control of the latter’s single power plant in Tanjung Gemuk, Port Dickson that has a total capacity of 440mw. The plant supplies electricity to Tenaga Nasional Bhd under a 21-year power purchase agreement expiring in January 2016.

Sime Darby Biofuels, meanwhile, is presently inactive and dormant. The operation and maintenance business of PD Power which was previously held under a department in Sime Darby Energy & Utilities will be novated to Sime Darby Biofuels.

“The proposed acquisitions represent an opportunity for the MMC Group to strengthen its energy and utilities division by consolidating the assets of PD Power and Sime Darby Biofuels with those of Malakoff,” said MMC.

Following a strategic review of its businesses, Sime said the disposal is in line with the group’s long-term strategy to be a leader in its core businesses — plantations, industrial equipment, motors, property as well as energy and utilities.

“The power purchase agreement for PD Power expires in 2016. Since we are focusing on our five core businesses, the decision was made not to scale up our investments in the power industry,” said Sime’s president and group chief executive officer Tan Sri Mohd Bakke Salleh in a statement.

He added that the group will use the proceeds to strengthen its existing businesses.

According to Sime’s 2013 annual report, the group’s profit before tax from its energy and utilities division had declined by 31.5% to RM229.9 million from the previous year’s RM335.4 million. This was despite churning higher revenue of RM1.4 billion from RM1.2 billion previously.

Meanwhile, Sime’s energy and utilities executive vice-president Datuk Jauhari Hamidi pointed out that the dynamics of the power industry have changed since Sime first made its investments in the sector.

“Our decision to exit from this asset reflects an assessment of our abilities to best capitalise on the opportunities in the various sectors in which Sime has interests,” he said.

He highlighted that the group is more focused on building capabilities to capture emerging opportunities in its trading and engineering operations, adding that it has operations in Malaysia, Singapore and Thailand.

“Continuous urbanisation and industrialisation are expected to drive demand for engineering products and services,” he added.

The deal is expected to be completed by June 30.

This article first appeared in The Edge Financial Daily, on April 8, 2014.