YTL Group's restucturing rumor

YTLPower and YTLLand rose after the Edge newsletter reported that they may be bought out by their parent YTL Corp as part of a restructuring. I think it is probably not true. YTL Corp's Francis Yeoh runs a tight ship and he won't do preliminary announcement nor condone leak which will cause the share price to rally prior to any offer.

One can make a case that YTLPower & YTLLand are good companies which have seen a sharp decline in share prices over the past 8-12 month. YTLPower is a steady income stock which generates good cash dividend as well as dividend in specie. However, YTLPower has invested in YTL-e which is setting up a new WIMAX mobile telecommunication & broadband services. This capital-intensive business would be a serious drain of YTLPower's resources for the next few years until YTL-e's operation is self-sustaining. You may notice that YTLPower's dividend has declined in FY2011 (here). In addition, YTLPower's main cash earner, the power generation division is under the cloud due to possible restructuring of the energy sector. Would YTL Corp want to buy up YTLPower at this juncture? If YTL-e continues to be a drag on YTLPower, wouldn't the share price of YTLPower be even lower in 2-3 years' time? A buyout in 2014-15 would be even cheaper for YTL Corp.

YTLLand is nearly completing a massive restructuring where it will become the dedicated property arm of the larger YTL group. That restructuring was announced in November 2010, which includes properties & property companies being sold by YTL Corp to YTLLand; settlement agreed; as well as a proposed issuance of ICULS. In fact, the only thing outstanding is the issuance of the ICULS where the closing date is October 20. For more, go here. If YTL Corp wants to takeover YTLLand, the management would not go through all these troubles & then does a volte-face at the last minute. So, I think a buyout of YTLLand is not likely. In fact, the whole buyout story has generated quite a lot of excitement which would only encourage shareholders of YTLLand to subscribe for the YTLLand's ICULS. Is that the real reason for the story? Only time will tell or maybe not.

Based on the above, I believe that YTLPower & YTLLand have come up to a level where one who is holding shares in these companies should consider selling.


Chart 1: YTLPower's daily chart as at Oct 17, 2011 (Source: Quickcharts)



Chart 2: YTLLand's daily chart as at Oct 17, 2011 (Source: Quickcharts)