Sembcorp Industries (SCI): Is developing a 426MW natural gas-powered power plant in northwestern Bangladesh under a public-private partnership, marking its maiden foray in this emerging South Asian market.
Wholly owned Sembcorp Utilities will take a 71% stake in the US$390m build-own-operate project, while North-West Power Generation Company, a subsidiary of the Bangladesh energy board will own the remaining 29%. SCI's portion of the investment will amount to US$68m, implying a 75/25 debt equity structure.
The greenfield plant is expected to be completed by 2018 and will be backed by a 22.5 year power purchase agreement with the government.
Maybank KE views this award as a long term positive given the lack of domestic opportunities for its utilities arm. The landmark project will go a long way to meet the growing energy needs of Bangladesh as the current generation capacity is insufficient to cope with demand.
Plans are afoot to add another 10GW of capacity over the next decade and as the first foreign investor to enter such a deal in the Bangladesh power sector, SCI is in good stead to capitalise on the growth opportunities in the country.
Project cost of US$0.9m/MW appears favourable compared to the global benchmark of ~US$1.2m/MW. Maiden contributions are expected to come in only from 2018 onwards, adding ~$10-15m to SCI’s earnings. As with its India power projects, the Bangladeshi plant would probably not operate at full capacity at the onset due to potential teething problems.
Nevertheless, near term catalysts for SCI are lacking with concerns about its offshore outlook. But with the proposed divestment of SembSita possibly raking in about $482m in cash, its dividend yield of 4.2% is likely to be sustained. This could help provide some support to the counter.
The house maintains a Hold rating on SCI with a TP of $3.67.