I also like to point out that the loan provided is on non-recourse basis. Which mean the bankers can only rely on the power plant to recover their loans. They cannot sue the borrowers for shortfalls, if any.

Even though the Bankers have step-in rights on the power plant to allow it to continue operating the power plant if the borrower reneged, the bankers must still be absolutely sure that the PPA provides sufficient cash flow with high margin of safety to allow the plant to operate profitably before approving the loans.

"A non-recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount." - Investopedia

Allow me to put the figures right for “Why Jaks”;

1. The project is 75% debt. Hence, the loan provided is US$1.402b (about RM5.6b) not RM7.76b.

2. Jaks paid upfront cash of US$51m for 30% in JV with future capital commitment of US$110m. So, not free of charge.

3. The Net assets per share as at 30 June 2018 is RM1.47 and is inclusive of investment in JV.

Nonetheless, He does have a good point. Future distribution from the power plant will be sufficient to pay for the 10% option.

Sorry, EW98, as I have said, I have no insider info. I have no knowledge on that point.

However, my lawyer friend said BG is usually meant for performance bond.
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EW98 Hi DK66 Have you seen the agreement between Jaks and Star. If so is the RM50mill BG for liquidated damages or as security bond for due performance on Jaks part

First, IRR of 12% is provided by the management, not me.

Second, what I argued is whether the 12% IRR should be Project IRR or Equity IRR. They are very different.

Valuelurker said it should be Equity IRR 12%, not Project IRR.

qqq3, I already put the records straight. I have no inside information.

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qqq3 Posted by DK66 > Sep 26, 2018 11:26 PM | Report Abuse

dk...why you pretend u know so much about IRR and things not known and not knowable right now? what details u got? U got inside track to Jaks? u got access to the bankers' working papers?

qqq3, you think the equity IRR is just 12% ??? I m not saying your judgement is wrong, but really wondering ............

Equity IRR of 12% will not be acceptable considering the cost of capital. More so for investment in countries with credit rating below investment grade like Vietnam.

Based on the Study on Economics of Coal-fired Power Generation Projects in China by Coal Power Economics Study Group of North China Electric Power University in 2015. The current cash flow statements for full investment and equity capital of the 600MW coal-fired units were prepared in accordance with the financial appraisal method of the engineering projects. The key economic and technical indicators (i.e. project payback period and IRR) of coal power projects of each typical province can be calculated through the cash flow statement.

Pursuant to the method for determination of the practices and discount rate of the energy sector, the full investment IRR of a 600MW coal-fired power plant is set to 6.6% and the proprietary funds IRR is set to 8%, i.e. the benchmark rate of return of the sector. This analysis shows that the rate of return of the coal power project of each typical province is far higher than the benchmark level of the power sector. Especially for Hebei, Jiangsu and Guangdong, the full investment IRR exceeds 15% and the equity capital IRR close to or exceeds 30%, and the coal power enterprises can even recoup equity capital in less than three years for specific projects while went into operation. This high IRR and this short payback period likely reveal the economic driven factor for the unabated interest in coal power investment in the environment of weak demand and low-carbon transformation.

http://www.greenpeace.org/eastasia/Global/eastasia/publications/reports/climate-energy/2016/Study%20on%20Economics%20of%20Coal-fired%20Power%20Generation%20Projects%20in%20China%20Report.pdf

Equity IRR of 30% is common in China !

Halite, TQ, I might not be correct all the time, but I have no bad motive.

JAKS’ POWER PURCHASE AGREEMENT WITH VIETNAM ELECTRICITY (“EVN”) (“PPA”)
The PPA provides for EVN to purchase and the BOT Company to sell electricity generating capacity and electricity generated by the Facility for twenty five years after the commercial operation date of the Facility unless extended or earlier terminated as stipulated under the PPA. The tariff charged by JAKS Hai Duong to EVN comprises the capacity charge, energy charge and supplemental charge. Fuel (coal and secondary fuel) and limestone costs will be passed-through costs under the PPA.

Yes, the agreement terms are correct.

The management has already acknowledged the 2 tier the tariff payment structure.

----------------------
Halite Dear DK66,

BOT= build, operate and transfer
PPA= power purchase agreement
CSA= Coal supply agreement
LLA= Land lease agreement

you mean so far the management still has not revealed the type of tariff payment that had agreed in the PPA.

pay-or-take structure or 2 tier payment structure

right ?
26/09/2018 21:14

100% risk free investment. Much better returns than FD.

Icon8888 sifu, my other investments are Rsena and PEB(triplc).

Reference is made to the subject matter and the announcement made by the Company on 30 July 2018 and 1 August 2018.

At the Federal Court today, the hearing of the Company's leave to appeal application was adjourned until 7 November 2018.

The ad interim injunction granted by the Federal Court remains until the hearing and disposal of the leave to appeal application on 7 November 2018, or until the Court of Appeal hears and disposes of the substantive appeals, whichever is earlier.


This announcement is dated 26 September 2018.

http://www.bursamalaysia.com/market/listed-companies/company-announcements/5922933

Since more people are seeking answers from me, I would like to take this opportunity to put the records straight.

I put together bits and pieces of information gathered from internet and experts to form what I thought to be the most probable picture. There are many research papers done on the investment in Vietnam power projects including its demand for electricity, risks, returns, the evolution of the tariff structures, how the gov’t reformed to attract foreign investments etc.

There is also research done on how the Chinese mitigates risks on their Vietnam investments.

Hint: for those who can read mandarin, try search BAIDU as this is a Chinese project.

Back to Apini’s questions,

No, I have not seen any of Jaks agreements on BOT,PPA,CSA, and LLA. These agreements are protected by secrecy clause to prevent them from being publicized.

I don’t think the tariff payments are calculated on per KwH generated basis. This would not be feasible as the operators will demand very high tariff rates for the high uncertainties. Take or Pay tariff structure will put too much pressure on the Vietnam govt as it too has to deal with the uncertain future demand landscape.

Hence, the two tiers tariff structure is thought to be win-win. BOT agreement provide government guarantees on performance risks, foreign exchange risks, etc. Capacity payment guarantees the agreeable returns on the capital and know-how invested by the operators, and the Energy payment provides additional revenue for the power produced. This tariff structure minimizes the risks profile of the investment thus allowing the operators to lower the threshold returns to make the investment feasible both in the eyes of the operators and the bankers.

It is very difficult to verify the authenticity of information obtained from the internet. However, if you have obtained your information from numerous sources, it enhances the reliability of the information.

Finally, you need to use business sense to determine the reasonableness of your derivations.

---------------------------------------------
apini Dear DK66
Good morning
Have you read the agreement of the power plant JV ?
Can you please kindly enlighten us what is the average rate government buy back the electricity from the jv?
What is the estimate of the average production of the electriccity per day ?
If suh information available from any reliable source.?

Thank you.
26/09/2018 09:00

Yes, big portion of the costs will be incurred during 1H19.

“The big money is not in the buying and selling, but in the waiting.” — Charlie Munger

9月18日，#1-1锅炉包墙内最后一组蛇形管排成功吊装完成。至此，#1-1锅炉后炉膛包含高温再热器，高温过热器、低温过热器组合在内共计190组蛇形管排已全部吊装完成，为后续的散管焊接、联箱安装打下坚定基础。
　　自9月1日第一组蛇形管排吊装开始，历时18天，190组蛇形管排，190次起吊，每天起吊约10多次，在海外展现了“中国速度”。从施工前的安全培训、安全考试、焊工技能考试、安全技术交底等，到施工过程中的管控、管理、复查；从蛇形管开箱验收、吹扫通球、组合二次吹扫通球，再到吊装、对口、焊接等；每一个环节，每一个步骤，专业科管理人员和队伍施工人员丝毫不敢松懈，始终保持全身心的投入，不仅要做好各项开工准备工作，还要不断加强过程管控和协调，保障每个施工环节环环相扣，持续有效推进。接下来，项目部将借助受热面焊口完成过半和蛇形管排吊装完成这一良好时机，充分利用旱季施工的良好天气，加紧组织各项资源，高效快速推进现场各项安装工作。

9月23日下午4时，公司承建的越南海阳2×600MW燃煤电厂工程EPC2B取水泵房-0.9米至1.5米标高浇筑完成，顺利出零米，浇筑量250立方米。

No impact as provision for LAD has already been made. Bank balance tied to the bank guarantee has already been marked (restricted). However, as the star tower is waiting for handover approval, an agreement for out of court settlement is possible. Or the court could order to enter into arbitrary judgement. If so, a relief rally is possible.

kcchongnz, thank you for justification.

Don't delete your post when the plant begins operation.

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valuelurker You dont know how to do DCF's, dont understand the power plant industry in general and in Vietnam specifically and dont know how to do research dont mislead people sky high TP la

RM300-500mil per annum from the Vietnam IPP? Who else lai lai dont be shy

Lol even i3investor support old man koon where did past comments from 11-19 September go no wonder people's IP address and IC info can be leaked lol
20/09/2018 21:01

Jaks' price will rise to a level you can only dream of. The most difficult part is how to make yourself believe in it. It won't happen overnight but the day will come when Jaks reports its results after the plant begins operation.

IRR is meaningless to people on the street. But to an expert in the field, it tells a thousand words. One needs to be very experienced with deep understanding of concession business to appreciate the significance of IRR, payback period etc. Uncle Koon is definitely one of them. He may not even need any of these info because understanding the business is everything. So, yes, IRR is a valuable piece of information. IRR is based on NET CASH FLOW, no need to worry about ipp related expenditures such as tax, interest, capex, opex etc.

Halite,

1. Warrants are call options in nature. It gives one the rights to buy the "mother" share at a given price. They have a fixed lifespan and do not have voting rights, etc. Hence, not treated as equity capital.

It is a "current + future" cash calls on existing shareholders as it is done on right issue basis.

It doesn't reduce the total commitment. It only delays a portion to a later date. Meanwhile, it doesn't immediately dilute the EPS.

2. Vietnam will start tariff payments once the plant starts operation. All capital and returns including construction profits will be gradually recouped over the next 25 years.

There is no such thing as "cash profit" in accounting treatments. Recognition of construction profit in this case must follow the international accounting practices. Construction profits will be recognised on project completion basis while future operation profits will be taken up only after the plant begins operation.

-------------------------------------------------
Halite Dk66,

1. Why right issue of warrant not shares equity?

Is it right to think it is an attempt to mitigate the capital commitment of major shareholders and PP holders

2. Since profit is used to pay the capital commitment of the 30%sharing, is it right to think we can only see accounting profit but zero cash profit for jaks at least for the beginning few years of the operation.


Thank you
19/09/2018 09:24

Halite,

I have previously said that the entire EPCC jobs has been subcontracted to CPECC. Hence, do not require funding from Jaks. I still maintain my stance on this point.

However, many doubted me as Jaks is currently issuing warrants to raise funds. One of its purposes is to raise funds to speed up the construction of the IPP. Truely ??

So, the onus is on you to make a judgement for yourself.

--------------------------------------------------------------------
3. it is right to say it is possible to have more fund raising to support the construction or operation of the power plant or to acquire the next 10%

Halite,

1. When banks lend a non recourse loan to a project as huge as Jaks vietnam IPP and especially when repayment of loan sorely dependent on the cash flow from the power plant, it is sensible to assume that the banks must have ensured that the revenue from the power generation is sufficient for all purposes including interest and loan repayments. The project will not be allowed to fail due to cash flow issues.

When carrying out a feasibility study on a project to achieve a certain level of IRR. It has included all cash flow items including interest payments. As power generation is a very stable business so is its cash flows.

Due to the discounting effect, to arrive at high IRR with minimal tariff payments, it would entail higher tariff payments during the initial years. It is also inline with Vietnam gov't objective to see reducing deficits from subsidies over time.

2. No, as tariff payment is based on capacity charge and energy charge which depend on the efficiency of the plant. Efficiency of a plant usually is at its best during early years and deteriorate over time. The only catch is if the power generation is less that optimal initially due to lagging effect of demand for electricity. But this should not be a problem as Vietnam is hungry for power now.

3. As I have already explained to kcchongnz, Jaks' future capital commitment of US$110m is expected to be sufficiently covered by the profit from its EPCC contracts of US$454m. (Please see my previous posts). I have also highlighted that the option to acquire another 10% ownership in the IPP will cost about RM250m which can be satisfied via exercising the warrants.


-------------------------------------------------
Halite Dear DK66 ,

mind to share with us your views about the following questions ?

1. How is the loan interest and repayment affect the income and cash flow derived from the power plant for the first few years

2. is it right to say we may not be able to see good profit for at least a few years after the plant has completed in 2020

3. it is right to say it is possible to have more fund raising to support the construction or operation of the power plant or to acquire the next 10%

Thank you .
18/09/2018 20:22

截至9月14日，越南海阳#1-1锅炉已累计完成焊口10655只，一次合格率98.93%，#1-1锅炉共有焊口20859只，焊口完成比例已超过50%。
　　超前策划，精心组织，确保受热面顺利开焊。首先，热动专业科和焊接专业科提前编制作业指导书上报总包和业主审批，同时积极做好焊工考试和培训工作，确保所有焊工均通过考试后持证上岗。其次，热动专业科积极做好管排外观检查，尺寸复查、找正、管排通球、集箱吹扫等开焊前准备工作，并按照人员进点情况分批对受热面施工作业人员进行岗前安全技术交底。

　　精细管理，精诚合作，全面提高焊口一次合格率。自#1-1号锅炉受热面开焊以来，项目部不断加强技术管理和质量管理力度，强化技术过程管控和质量检验措施，质检人员通过加强对现场施焊过程巡查监控，确保无错口、折口、母材割伤等质量隐患的发生，有效地保证了焊口一次合格率；另外，项目部在施工过程中多次组织对各级焊工进行焊接知识和操作技能培训，通过理论指导和实际操作相结合，逐步提升焊接技能，为全面提升现场焊接质量打下基础。

　　进入9月份以来，越南海阳项目驻地雨水逐步减少，现场逐步进入施工的黄金季节，接下来，项目部将充分把握这一大好时机，全策全力，团结一致，持续做好#1-1锅炉受热面焊接管控工作，全力保障#1-1炉各项节点如期顺利实现。

It will only cost KYY about RM12m to subscribe for his warrant entitlements.

-------------------------------------------------
Halite Right issue is a major concern now
KYY got to vomit another hundred million to subscribe or sell all his OR
For those who prepare to hold long term OR can be a better choice.
16/09/2018 15:06

Sherlock, Ipp and highway are only alike in so far as both required big initial investments and require long tenure to recoup capital and returns.

However, before making comparison, you must know the terms and conditions of the concessions. They could be totally different.

A highway gets its revenue directly from the traffic flow but an Ipp normally sell its electricity to a particular buyer. So, the risk profile is quite different.

------------------------------------------------
sherlock I have the feeling that ipp is something like highway. First few years, the profit go to the bank that financed the project, there is a similarity,
but it is worse than highway because the maintenance cost for highway is not that high and lower risk of shut down

This is just my imagination. I see a highway everyday, but I have not seen an ipp before. So I do not know how it is actually operated, I only know it generate current.

I am just sharing my wild imagination.
15/09/2018 12:17

Sherlock, you seem to be keen in knowing more about Jaks. However, the questions you asked do not reflect well on you. The answers to your questions (except No2 which I do not understand) are readily available in the bursa announcements. Moreover, there is Google to help you understand certain issues.

You must equip yourself with learning skills. Can't really depend on others especially those in i3 whom you never met, to guide you. There are more evils than angels in i3, you may fall into the wrong hands.

I hope this serves as a wake up call.

Oops, you are referring to something else ?? My bad .....

-------------------------------------
qqq3 no sure whether u know what is in my mine.....
14/09/2018 14:36

qqq3,

well said.

I m one of the victims too.

Can really predict the randomness, not even with the wildest imagination.

-----------------------------------------------------
qqq3 few can escape from Fooled by Randomness, not icon, not choivo, not many......


only when you become detached, with no attachments can u escape from being Fooled by Randomness.
14/09/2018 14:05

I really wish i3 can be a better place ......

Icon8888, I place my bet on the "Banker".

Sense maker,

Jaks' fundamental was not rock solid. It needed urgent cash to complete its Pacific star project which was long delayed and facing lawsuit. The fastest way was to do 10% private placements which was pre-approved during AGM. One at RM1.36 in 2017 and the other at RM1.38 in 2018. Both took less than a month to complete. Apparently, It seemed easy for Jaks to raise cash. What attracted the Institutions and fund managers? I can't think of anything other than its vietnam IPP.

Andy Ang's immediately restored its stakes in the company thru exercise of LTIP at RM1.40 and open market purchases. The remaining LTIP, likely given for free, to selected few, will not be diluted as the LTIP approved is on 15% of issued shares.

------------------------------------
sense maker If fcf p.a. would b fantastic such as >rm200m, why would the M.D. cum controlling shareholder not do n underwrite rights issue to raise cash so that his shareholding would not be diluted? This is common sense, n I am surprised that even someone claiming to have biz sense cannot see this. Doing private placements in so many rounds doesn’t portray a picture of fantastic fcf ahead.
10/09/2018 00:22

Lyk100,

You are welcome.

Jaks has sold a few pieces of lands for around RM200m, and did an internal restructuring for the purpose of refinancing to get RM100m loan. It has also completed 2 placements to raise around RM150m.

To-date, the star building has been completed waiting for handover. That will settle the RM50m BG issue. Management has touted that the potential billing to The Star for the variation orders is MUCH HIGHER than RM50m.

The right issue of warrants is offered to all shareholders. Hence, not dilutive for those who subscribe. Notice that the proceeds are not meant for its local projects.

In my opinion, Jaks should have sufficient cash flow to complete its local outstanding projects.

Having said that, I must add that Jaks will need to fund its option for another 10% stakes in the vietnam IPP within 3 years from operation. Estimated to cost around RM250m, the proceeds from the warrants upon exercise by shareholders will fill the slot.

--------------------------------------
Lyk100 Dk66 and Kcc. I would like to thank you for the insight discussion above.

I hope to join in your discussion if it’s possible. My email is yikhoon93@hotmail.com.

However, if not possible. My question is this.
What would be the funding options for jaks right up to 2020?

From the disclosures, I would imagine that jaks with profit recycling into the JV would be relatively safe to fund the IPP and from the management’s past actions of committing to this project. I believe this would be the course of action they would take.

However, the various other segments are draining cash and pulling down results fast too. (50m BG and Evolve Mall that are idle assets waiting to be sold). Given that the share price has fallen significantly and jaks is in need of cash.

Either they would be issuing more warrants to cover the GAP which cause more significant dilution or they would need to find other sources of funding since the share price is unfavourable.

Appreciate any comments on my logic. Thank you
09/09/2018 23:49

You are welcome

--------------------------------------------------------
kcchongnz Oop sorry DK66,

Forgot to thank you for the enlightenment of this power plant project.

Thank you.
09/09/2018 22:35

Kcchongnz,

You may find my estimation hard to stomach. Based on ultimate 40% ownership, my estimates of FCF range between AVERAGE of RM300m to RM500m annually.

-----------------------------------------------------
kcchongnz Posted by DK66 > Sep 9, 2018 01:46 PM | Report Abuse

DK66,I am getting good opinion from you. Could you share what is the estimated FCF Jaks is getting in the future 25 years when power is being sold? What is your estimation of the present value of this FCF?
09/09/2018 14:35

The construction profit has to be included as part of the capital when measuring the IRR. The IRR calculation is based on the project cost of US$1.87b. In this case the IRR must be referring to the Project IRR not Equity IRR. Equity IRR of only 12% will be too low considering the size of the investment, the sovereign risks and the cost of equity capital.

The vietnamese regulations on the IRR is only relevant when negotiating the PPA for approval based on the most probable operating conditions.

When we are faced with limited information about a project, Project/Equity IRR of a project becomes a valuable piece of information. Subject to certain assumptions, given the cost of the project, the debt ratio, the payback period and the operation period, we could be able to roughly make a projection of the FCF pattern.

In my opinion, assumption of RM100m annual FCF is far too low and is contradicting both 12% IRR and 8 years payback period.

-----------------------------------------------------------
To me, whether it is lucrative to invest in a company has any business sense must depend on, at least some estimations; how much I pay for the investment, and how much is my potential return.

1) IRR is only relevant when we carry out a financial feasibility studies. IRR must be higher then the cost of equity, taking into and topping it up with all the risks and their premiums involved. But now we are investing in Jaks at this moment in time, of which the power plant is one of the projects, we are be concerned of what its future cash flows, free cash flows in particular, for Jaks for the next 25-30 years. This is important as we can compare with what we pay for Jaks, and if this price is a good price, if we want to talk about investing for long-term, rather than speculating for short-term gains.

2) what is this "profits"? I guess you must be referring to the annual profits of the entity. So 30% for Jaks? Is this the same as free cash flows? Does it mean the entity just came up with USD160m initial capital, and getting FCF of USD150m when the power plant starts, and for the next 24 years? You said the JV partners need not come out with any more capital because the construction profit will pay for the remainder equity. This can't be true, can it. If so this must be the most lucrative PPA in the world and in history with IRR>30%?

3) IRR 12% is quite correct then if payback period is 8 years. But this must be cash flows then. But this statement disproves the above. The payback period is much shorter if the initial investment is 160m but 5 years later the jv makes 150m and continues.

4)Let say the profit is actually FCF. How much is RM100 from the power plant translated to EPS for the enlarged 800m shares of Jaks? 12 sen per share? What price are you willing to pay for this cash flows?

Bearing in mind also when we invest in Jaks, I reiterate, invest, we are investing in the whole company of Jaks, its power plant, property and construction, and most of all, its management.

5)No comment.

6) Does this violate the Vietnamese regulations?

I also believe the Vietnamese power profit would likely to be successful. Just ponder if Jaks is worth investing, and at what price.

No, I am not able to make projection of its FCF. I do not know much but just trying to find out more about it for curiosity sake.
09/09/2018 11:37

Kcchongnz,

That is the most crucial piece of information for our decision. However, there is very limited information on this part. That is where business sense becomes useful.

However, there are some yardsticks for evaluation,

1. Management has indicated that the IRR would be 12%. ( Cannot be higher as restricted to 12% by the Vietnam gov't on all foreign BOT)
2. Management has previously estimated profits for the project to be around US$150m.
3. Management has indicated that payback period would be 8+ years
4. Management indicated that the profit would be more than RM100m during the latest AGM
5. AES Corp 51% owned Mong Dong 1,240MW coal power plant in Vietnam which started operation in April 2015, distributed US$46m in 2016 and US$51m in 2017 to AES Corp. Normally distribution will grow as requirements for working capital, cash reserves for maintenance, and cash reserve for debt covenant, reduce over time.
6. An article in The Edge Weekly in 2015 cited IRR will be at least 15% from unnamed sources.

As I do not want to be doubted for providing projections which are "too good to believe" , I will not provide my projection on the free cash flow.

I believe you are capable of working out your projections based on the information above.

I hope I have been helpful.

---------------------------------
kcchongnz DK66,

Any idea what would be the annual free cash flows like for the power plant operations in the 25 years?
09/09/2018 00:38

It is correct information.

Management previously touted that US$30m will be financed and balance US$59m will be from construction profit.

Now that the IPP construction profit seems to be sufficient for its future capital commitment. That is why I said financing may not be necessary.

Andy Ang should be well aware of its local tight cash flow situation on its Pacific star project. It will not risk its vietnam ipp on financing issues. The projection on funding sources must seem to be reasonable. Especially the portion from the construction profit, should not be too big to raise concern from the vietnam authority.


-------------------------------------
kcchongnz Posted by Icon8888 > Sep 8, 2018 11:25 PM | Report Abuse
the following information is extracted from section 2.10 of Jaks 2015 circular (link below) :
(a) total equity contribution required from Jaks is RM536 mil;
(b) as at 2015, Jaks has already made advances of RM196 mil to IPP. That amount will be capitalised;
(c) IPP construction profit will contribute RM226 mil; and
(d) Jaks to further inject RM114 mil. (probably through the latest rights issue of warrants and private placement)
The above info is correct as at 2015.

So it is not true that Jaks will not have to come out any more money. It still has to find RM114m.

DK66, do you agree? I am just trying to understand the project.
09/09/2018 00:04

Precisely.

As the management has not given out much details on the IPP. It keeps the market wonders about its viability. Some even doubt all projects under 1B1R are political motivated and unprofitable. But what is Jaks' political motive from being a part of it ? How to weaponize a power plant ?

Mong Duong II was completed 6 month ahead of timetable and has been profitable since operation in mid 2015. Vinh Tan 1 unit one has started operation 5 months ahead of schedule. CPECC has completed over 49,000MW of coal power plants. There is no double over its capability to complete Hai Duong power plant.

Then again, to say it is completely risk free is irresponsible.

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Icon8888 Jaks has come a long way. If now is 2015, I would not dare to touch the stock.

But we are now in 2018 : Jaks has secured a strong partner, officially signed the concession agreement, achieved financial closure, made the agreements unconditional, already kicks start construction (20%), has Uncle Koon as a 20% shareholder (which becomes our watch dog).

From project point of view, the biggest uncertainties are already over. What remains are purely implementation. Based on our past experience investing in construction / concession companies, DK66 and I are of the opinion that completion is usually not a problem. So we make the bet.

It is as simple as that.
08/09/2018 23:47

Kcchongnz, I don't know everything about Jaks. Let me try to answer your question anyway.

Rightfully, Jaks will be paid US$454m for its EPCC contract which costs Jaks about US$332m to carry out the works. Banks will finance 75% of the contract fees.

Accounting wise, Jaks will bill JHDP US$454m for the work done and get US$332m payment. Balance will be injected as payment for equity capital.

So, it will not affect the structure of the JV .

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kcchongnz DK66,

You may be right as you know more about Jaks than me. I have a question here.

Jaks portion of equity requirement is USD110m in future commitment. That would be part of its share of equity injection which makes up its 30% stake in the power plant.

If Jaks (and the Chines)is allowed to use its construction profit to make up this remainder equity, who pays for this shortfall of USD110m?

CPECC, or the Chines banks?

If CPECC pays for it, wouldn't CPECC's stake be increased to more than 70%, may be 85%, and Jaks stake reduced accordingly?

If the Chinese banks foots the difference, wouldn't the capita structured changed? to 90%:10%?
08/09/2018 23:30

Toyoink has invested RM341m on its 2x1000MW coal power BOT in Vietnam. It has to borrow RM230m from its shareholder to fund the BOT. It has yet to secure a JV partner and funding. Is it a "chosen one"?

Kcchongnz, It is important to recognise that it was Jaks who secured the Hai Duong power BOT contract from the Vietnam Govt. It struggled with failed JVs before it landed on CPECC in 2015 with funding secured from 3 chinese banks. However, it has to settle with 30% ownership in the new JV with option to add 10% within 3 years from operation.

Jaks had advanced US$51m to the project before CPECC was brought in as JV partner. Part of the advances will be injected as part of its US$140m equity capital, leaving a balance of about US$110 in future capital commitment.

I didn't make it up, you can refer to the JV agreement for the details.

Jaks was award US$454m EPCC contract. Based on its historical profit margin of about 27% on the project, it is expected to earn US$122m whch is sufficient for its future capital commitment.

Jaks is not the "chosen one". It secured the investment licence and risked US$51m on the project. It had 2 previous JV partners who failed to secure funding. It approached TNB, and finally landed on CPECC as partner.

It is hard to believe Jaks, for its tiny size, dare to risk as much as US$51m to seal such a huge deal which many could not have thought possible.

kcchongnz, feel free to correct me ......

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I thought you are the most knowledgeable one in Jaks's power plant in Vietnam. Now I begin to doubt so.
08/09/2018 21:35

Commonsense, it is clearly written in the annual report that the capital commitment of the company is US$110m. Jaks' EPCC contract, which is subcontracted to CPECC, is worth US$454m. Based on its historical profit margin of 27% on the project, it is expected to earn US$122m whch is just right for its capital commitment. Hence, the vietnam project will not require any funding from Jaks.