KUALA LUMPUR: Toyo Ink Group Bhd’s share price has benefited from the letter of approval it received from the Vietnamese government for a US$2.5 billion (RM7.8 billion) power plant, but realising the earnings may be a long way off.
It has taken over three years of hard work to obtain the letter, but Steven KC Song, managing director of Toyo, revealed at a press conference yesterday that the plant will take three to four years to build and estimated that it would only begin operating in 2017 or 2018.
It should be at least six to seven years before the US$2.5 billion project even begins turning in cash, yet Toyo’s share price surged as high as RM1.88 on Tuesday, with a 50 sen or 36.23% gain for the month.
Furthermore, Song told the press that Toyo has yet to secure funding as it has not yet nominated a merchant bank to provide financial advice.
He declined to comment which merchant banks the group is in talks with but noted that the merchant banks the company is courting would have an international presence.
Toyo announced on Wednesday that it received a letter from the Vietnamese government with regard to the building of a two times 1000MW coal-fired power plant in Hau Giang province.
According to its announcement to Bursa Malaysia, the award is for “the Toyo group to have research and development of Song Hau 2 Thermo Power Plant Project, capacity of two times 1000MW at Song Hau Power Centre, Hau Giang Province”.
The announcement added that “the Ministry of Industry and Trade (of Vietnam) will preside, cooperate with the People’s Committee of Hau Giang Province in providing guidance to Toyo Ink in the setting up of the investment project and implementation of next steps of the project, organisation of assessment and submission for approval as required by laws”.
A market observer noted that the wording of the letter is rather vague, as it does not outwardly say that the project has been awarded to Toyo, but rather “the research and development”.
Furthermore, Toyo has yet to sign a power-purchase agreement (PPA) with the Vietnamese government although Song said, “Hopefully, it won’t take too long. Once we have negotiated the PPA and agreed upon a rate with the Vietnamese government, we will know our revenue.”
The terms of a PPA are crucial to determine the viability of a project, its returns and the ability to obtain financing.
Likewise, Song could not provide a gearing ratio for the project, citing a lack of financial advice but indicated gearing would depend on the amount of cash its partners would bring to the multi-billion dollar project.
In comparison, Toyo’s market cap yesterday for its 42.8 million shares was only RM75.76 million.
A quick look at Toyo’s balance sheet reveals that the group’s cash and bank balances stood at RM1.78 million as at Sept 30 with a total of RM106.78 million in current assets against RM89.45 million in current liabilities.
With so little cash on its balance sheet, Toyo will have to raise a substantial amount of equity to leverage against if it hopes to raise US$2.5 billion, even if it brings in several cash rich partners. Song also revealed that Toyo is still looking to bring in a partner with the technical expertise to help the group set up the power station as it has no prior experience with setting up power plants, a highly technical industry.
“Toyo Ink will continue with its core operations. We will set up a new company to undertake the power plant project,” said Song. “Any partners we wish to work with have to be approved by the Vietnamese government.
“The Vietnamese are struggling with power supply issues. They know we won’t undertake the project unless it is beneficial to us as well, so we expect a reasonable rate.”
“How long it takes for us to recoup our investment will depend on the price per megawatt the government gives us in the PPA,” said Song who estimated that return on investment will take seven to nine years.
“Once the plant is up and running we can issue an initial public offering to pay off some of the debt used to finance the plant,” said Song but declined to comment on when this would happen. The biggest risk to the project is inflation, but Song believes that the Vietnamese government is dealing with it.
Toyo’s share price fell 11 sen yesterday to RM1.77 after the suspension of its shares throughout Wednesday was lifted.
This article appeared in The Edge Financial Daily, December 9, 2011.
It has taken over three years of hard work to obtain the letter, but Steven KC Song, managing director of Toyo, revealed at a press conference yesterday that the plant will take three to four years to build and estimated that it would only begin operating in 2017 or 2018.
It should be at least six to seven years before the US$2.5 billion project even begins turning in cash, yet Toyo’s share price surged as high as RM1.88 on Tuesday, with a 50 sen or 36.23% gain for the month.
Furthermore, Song told the press that Toyo has yet to secure funding as it has not yet nominated a merchant bank to provide financial advice.
He declined to comment which merchant banks the group is in talks with but noted that the merchant banks the company is courting would have an international presence.
Toyo announced on Wednesday that it received a letter from the Vietnamese government with regard to the building of a two times 1000MW coal-fired power plant in Hau Giang province.
According to its announcement to Bursa Malaysia, the award is for “the Toyo group to have research and development of Song Hau 2 Thermo Power Plant Project, capacity of two times 1000MW at Song Hau Power Centre, Hau Giang Province”.
The announcement added that “the Ministry of Industry and Trade (of Vietnam) will preside, cooperate with the People’s Committee of Hau Giang Province in providing guidance to Toyo Ink in the setting up of the investment project and implementation of next steps of the project, organisation of assessment and submission for approval as required by laws”.
A market observer noted that the wording of the letter is rather vague, as it does not outwardly say that the project has been awarded to Toyo, but rather “the research and development”.
Furthermore, Toyo has yet to sign a power-purchase agreement (PPA) with the Vietnamese government although Song said, “Hopefully, it won’t take too long. Once we have negotiated the PPA and agreed upon a rate with the Vietnamese government, we will know our revenue.”
The terms of a PPA are crucial to determine the viability of a project, its returns and the ability to obtain financing.
Likewise, Song could not provide a gearing ratio for the project, citing a lack of financial advice but indicated gearing would depend on the amount of cash its partners would bring to the multi-billion dollar project.
In comparison, Toyo’s market cap yesterday for its 42.8 million shares was only RM75.76 million.
A quick look at Toyo’s balance sheet reveals that the group’s cash and bank balances stood at RM1.78 million as at Sept 30 with a total of RM106.78 million in current assets against RM89.45 million in current liabilities.
With so little cash on its balance sheet, Toyo will have to raise a substantial amount of equity to leverage against if it hopes to raise US$2.5 billion, even if it brings in several cash rich partners. Song also revealed that Toyo is still looking to bring in a partner with the technical expertise to help the group set up the power station as it has no prior experience with setting up power plants, a highly technical industry.
“Toyo Ink will continue with its core operations. We will set up a new company to undertake the power plant project,” said Song. “Any partners we wish to work with have to be approved by the Vietnamese government.
“The Vietnamese are struggling with power supply issues. They know we won’t undertake the project unless it is beneficial to us as well, so we expect a reasonable rate.”
“How long it takes for us to recoup our investment will depend on the price per megawatt the government gives us in the PPA,” said Song who estimated that return on investment will take seven to nine years.
“Once the plant is up and running we can issue an initial public offering to pay off some of the debt used to finance the plant,” said Song but declined to comment on when this would happen. The biggest risk to the project is inflation, but Song believes that the Vietnamese government is dealing with it.
Toyo’s share price fell 11 sen yesterday to RM1.77 after the suspension of its shares throughout Wednesday was lifted.
This article appeared in The Edge Financial Daily, December 9, 2011.
