KUALA LUMPUR: News that Jaks Resources Bhd has managed to rope in a Chinese party, which has the financial muscle to kick-start its power plant project in northern Vietnam, failed to boost its share price, resulting in it falling 1.8% yesterday.  

“It seems some profit-taking emerged amidst the weak sentiment given that the stock had rallied quite substantially year to date,” said a fund manager.

Jaks’ share price has almost doubled year to date, climbing from 44 sen in January to 86.5 sen last Friday — the highest level since April 2010. The stock closed at 82 sen yesterday with a market capitalisation of RM366 million.  

Despite the major milestone crossed, Jaks would not see an instant earnings boost from the US$1.87 billion (RM7.12 billion) power plant project, in which JAKS will  own an effective 30% stake, while China Power Engineering Consulting Group Co Ltd (CPECC) will hold the remaining 70%.

The contribution from the power plant would only start by 2020 with the power plant’s estimated annual recurring income being US$150 million.

Nevertheless, Jaks stands a chance to win the contract to carry out construction works to build the power plant which will enable it to earn income. Furthermore, CPECC will bear 70% of the RM150 million pre-contract works that Jaks has done.

“We haven’t signed the EPC (engineering, procurement and construction) contract yet, so we cannot confirm anything. But we will have a chance to participate in some of the construction works for the plant. The civil and other straightforward works can be done by Jaks, but the technological and technical side will be handled by CPECC,” said the company’s official.

“As CPECC is providing some extra financial support through their subscription of the redeemable convertible preference shares (RCPS), the recurrent revenue from the power plant will be divided on a 70:30 basis between CPECC and Jaks,” the official explained.

He added that any expenses incurred relating to the power plant will also be split on a 70:30 basis, which include the pre-contract works of about RM150 million carried out by Jaks. “That’s the structure of the agreement. However, Jaks will still maintain control through its 50% stake in Jaks Pacific Power Ltd (JPP),” he said.

Jaks on Monday signed agreements with CPECC as a joint venture equity partner for the US$1.87 billion 1,200mw power plant in Hai Duong, northern Vietnam.

Under the agreements, Jaks’ wholly-owned unit Jaks Power Holding Ltd (JPH) and CPECC each will subscribe to 140.1 million ordinary shares at US$140.1 million in Jaks Pacific Power Ltd (JPP), translating into a 50:50 stake.

Meanwhile, CPECC will also subscribe to 186.9 million RCPS in JPP at a subscription price of US$186.9 million.

Effectively, CPECC’s stake in the JV company, after including the RCPS subscription, would be equal to 70%, against Jaks’ 30%.

JPH has also entered into a call option agreement with CPECC, allowing JPH the option to purchase JPP shares or RCPS from CPECC, whereby JPH’s, a unit of Jaks, interest in JPP’s enlarged share base after the conversion of the RCPS shall be up to 40%.

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This article first appeared in The Edge Financial Daily, on July 8, 2015.