See Hup Seng Limited - Why did it agree to a preferential dividend distribution to ISDN Holdings Ltd?

3/11/2014 – SHS Holdings Ltd (formerly known as See Hup Seng Limited) is buying new shares in Indonesian hydropower company Aenergy Holdings Company Ltd for US$8 mln.

Aenergy Holdings Company Ltd is currently an 80%-owned subsidiary of SGX-listed ISDN Holdings Ltd.

The remaining 20% stake is owned by Robert Alexander Stone, who bought new shares for US$6.4 mln on July 23.

Incorporated in Hong Kong on March 27 last year, Aenergy Holdings is developing mini-hydropower projects in Indonesia.

At present, Aenergy Holdings' portfolio consists of five mini-hydropower projects in Indonesia with a combined capacity of 52.6 Megawatt (MW).

It owns an 80% stake in four of the projects and a 76% stake in the fifth project.

The remaining stake in all five projects is owned by its undisclosed Indonesian partners.

Aenergy Holdings estimates to spend an US$32 mln to develop more mini-hydropower projects in Indonesia.

It is based on that estimate that SHS Holdings is paying US$8 mln for a 25% stake in Aenergy Holdings.

SHS Holdings will pay US$2.5 mln by October 31.

The remaining US$5.5 mln will be paid on Aenergy Holdings' demand thereafter.

As a result of SHS Holdings' stake purchase, ISDN Holdings stake in Aenergy Holdings will be reduced to 55%, from 80% now.

Being the largest shareholder, ISDN Holdings will nominate three out of the five directors on Aenergy Holdings' board.

SHS Holdings and Mr Stone will nominate one director each.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Who are its Indonesian partners and how much are they contributing to the capex?

SHS Holdings' announcement didn't reveal the identities of its Indonesian partners which own 20%-24% stakes in Aenergy Holdings' five mini-hydropower projects.

Also, it didn't reveal how much of the capex those partners would will to develop Aenergy’s projects.

Question

2. How much and how soon is SHS Holdings aiming to profit from its US$8 mln investment in Aenergy Holdings?

In its announcement, SHS Holdings said 'The proposed Investment is also in line with the Company’s strategy to invest in companies with high growth potential that will reinforce the Company’s earnings base and enhance long-term shareholders value.'

However it didn't disclose how long it would take Aenergy Holdings to develop the five mini-hydropower projects in Indonesia.

In the announcement, SHS Holdings stressed the under-developed renewable energy sector in Indonesia.

There appears to be immense potential to increase the renewable energy production capacity in the country.

But if that is what SHS Holdings means by a 'high growth potential', it seems only possible with additional capex.

Aenergy Holdings' initial portfolio of mini-hydropower projects can only generate revenue by selling the power it produces.

Therefore, any reasonable investor would wonder how much profit Aenergy Holdings' would make on producing and selling each unit of electricity in Indonesia.

That makes us curious how much return will SHS Holdings' US$8 mln investment generate for its shareholders.

And for how long is it willing to stay invested in Aenergy Holdings?

(Read the full story to get all 7 questions)

We invited the company (shs@seehupseng.com.sg, herman@octant.com.sg, lisa@octant.com.sg) to an on-camera interview, and/or to reply to our questions in writing.

On behalf of the company, Waterbrooks Consultants said: “As they are only an investor in Aenergy's hydropower projects, it wouldn't be appropriate for SHS to address your queries. Perhaps you may wish to contact ISDN Holdings instead.”

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