Marubeni Corp, Japan's fifth-largest trading firm, and Tokyo Electric Power Co won a bid to buy Mirant Corp's Philippine power plants for US$3.4 billion, beating out bids from four rival groups.
The Marubeni-led group will get two coal-fired plants and a stake in a gas-fired generator, the company said in Tokyo yesterday.
Groups led by Japanese trading company Mitsui & Co, Mitsubishi Corp, Korea Electric Power Corp and US power producer AES Corp also bid.
Marubeni and Tokyo Electric gain 20-year contracts to supply power in the Philippines as electricity demand stagnates in Japan. Atlanta-based Mirant, which is selling assets after emerging from bankruptcy in January, will raise cash to fund a US$1.25 billion share repurchase program.
"The high price can be justified by the quality of the agreement that Mirant has with the government grid," said Simon Powell, an analyst at CLSA Ltd in Hong Kong. "The assets would generate a large cash flow, and it's almost a guaranteed rate of return into a market that's potentially short of electricity in the medium term."
Japan's electricity use may grow at a slower pace in the year starting April 2007 as economic expansion eases, the Central Research Institute of Electric Power Industry said last Tuesday. Power demand is forecast to increase 1.3 percent in the year starting April 1, down from an estimated 1.5 percent this year, the institute said.
The purchase price includes the power plants' debt. Marubeni and partner Tokyo Electric will equally own the assets.
Mirant shareholders demanded that the Atlanta-based company buy back stock or pay dividends.
The company scrapped an unsolicited US$7.86 billion bid for RG Energy Inc in June after a shareholder revolt, and started a share repurchase and auction of assets in the Philippines and the Caribbean, the company said in July.
The US power producer is selling its generation plants after emerging from bankruptcy in January. Its third-quarter loss narrowed to US$26 million from US$1.52 billion a year earlier because of lower interest costs.
Mirant, which bought the Philippine power plants from Hong Kong's Hopewell Holdings Ltd in 1999, has assets in the Caribbean and six natural gas-fueled plants in the US. Credit Suisse Group is advising Mirant on the disposal.
Godwin Chellam, a Hong Kong-based spokesman for the Swiss bank, declined to comment.
The announcement came after market close. Marubeni shares rose ?4 (US$0.034), or 0.7 percent, to ?601 today. They have fallen 7.7 percent this year, compared with the 1 percent gain in the benchmark Nikkei 225 Stock Average.
Tokyo Electric shares increased ?30, or 0.8 percent, to ?3,690.
"We're investing in the Philippines because it is a stable market and electricity sales are guaranteed by the government," said Naoto Tago, a manager of overseas power projects at Marubeni.
Marubeni, based in Tokyo, may build a 600-megawatt power plant in Java, Indonesia. It has contracts to develop a US$2.3 billion gas-fired generator in Qatar and a ?37 billion power project in Bangkok.
Marubeni and Tokyo Electric expect to get loans for 75 percent of the acquisition cost.
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