August 9, 2017 12:11 am JST

Bangladesh power giant wants $1bn to fund expansion drive

Summit Power up for possible $50m injection from GE, eyes Singapore listing

MAYUKO TANI, Nikkei staff writer

Ayesha Aziz Khan, managing director and CEO of Summit Power International

SINGAPORE -- Bangladesh's largest conglomerate, Summit Group, wants to raise at least a billion dollars on the international capital markets over the next two to four years to fund the expansion of its power business at home and abroad. Central to that aim is a plan to list Summit Power International, the holding company for the group's power businesses, in Singapore next year.

The holding company was set up in Singapore in 2016 to better access global investors, Ayesha Aziz Khan, Summit Power's managing director and CEO, told the Nikkei Asian Review.

By listing on the Singapore Exchange, "We will be able to raise the kind of money we want, not just for IPOs but should we want to do repeat offerings, raise [money through] bonds or ... convertible instruments," Khan said. "We have outgrown Bangladesh's capital market. The investor base in Singapore understands emerging markets and infrastructure very well."

She said the company considered bourses such as Kuala Lumpur, Dubai, London and New York before deciding on Singapore.

Emerging opportunities

Summit Power wants to tap emerging Asia's growing -- and potentially huge -- infrastructure market. The Asian Development Bank estimates that developing Asia will need to invest $26 trillion in infrastructure from 2016 to 2030, or $1.7 trillion per year. About $14.7 trillion of that will be for the power sector. For Bangladesh alone, an industry source said conservative estimates put the investment figure for power generation, transmission and distribution infrastructure at $10 billion to $15 billion between now and 2025.

On Friday, U.S. conglomerate General Electric signed a memorandum of agreement on a potential $50 million equity investment in Summit Power. GE, one of the two major suppliers of engines for Summit Power's plants, will have the rights to supply gas turbine-related equipment for Summit Power's projects over the next three years.

"Today we not only provide our technology, but we partner in terms of arranging financing, syndicating and investing within all the dimensions that are required to complete end-to-end solutions that ultimately provide the most cost-effective, reliable source of power," Banmali Agrawala, president and CEO of GE South Asia, said at the signing ceremony.

Once the investment is finalized, GE will be Summit Power's latest international shareholder. This will be the company's second equity investment from an international entity, after the $175.5 million deal led by International Finance Corp., the investment body under the World Bank, in September 2016. South Korea's Daelim Energy and a fund managed by Saudi Arabia's Islamic Development Bank also participated in the deal.

Summit Power is using the capital to support its domestic and international expansion.

The company's power-generation capacity in Bangladesh will double from the current 1,500MW to 3,000MW by 2020, as the company is aggressively developing new projects, including a new 590MW plant near Dhaka. Among private players, it controls a leading 13% share of the home market.

Risk factor

The economic outlook in Bangladesh is upbeat, with gross domestic product growing 7.1% in 2016 and the World Bank forecasting a 6.8% expansion this year. Aggressive efforts by the public and private sectors to build more power infrastructure have increased access to electricity from 47% of the population in 2009 to over 70% currently, according to the ADB. The government aims to boost that figure to 100% by 2021. Per capita power consumption is expected to rise from the current 400 kilowatt-hours per annum to 600 kilowatt-hours by 2021.

One risk factor for the country's power sector is rising cost of power generation. A shortage in the domestic gas supply is increasing Bangladesh's dependence on imported gas and coal to fuel power plants.

"The cost of imported gas is expected to be about four times more expensive than domestically available gas. Managing the integration of imported fuel options in the power mix and reflecting the increasing cost in the electricity tariff in a sustainable manner while being mindful of industrial competitiveness and ability to pay will be a challenge for the policy makers and the regulator," said Len George, an energy specialist at the ADB.

With Bangladesh beginning to import liquefied natural gas, Summit Power is moving upstream by entering the LNG regasification business. The company agreed to charter a floating storage and regasification unit from U.S. company Excelerate Energy. The FSRU will start operating in early 2019, becoming the second such facility in the country. It will have a regasification capacity of 500 million cubic feet per day and be located off the southeast coast, near Cox's Bazar.

Overseas projects

Overseas, Summit Power expects to receive the green light from the Sri Lankan government within a few weeks to develop a 350MW plant in Kerawalapitiya, near Colombo. Construction work is expected to start in the October-December quarter. The company also plans to bid for a Sri Lankan FSRU project, as well as study possible forays into the power markets of Cambodia, Myanmar, Vietnam and Indonesia.

"Over the next five to seven years, we see ourselves having another 1,000MW [of capacity] in these countries, [accounting] for about 20-30% of our portfolio outside Bangladesh," Khan said. She also expressed interest in India's renewable energy business.

The power business forms the core of the family-owned Summit Group, "accounting for about 60% of the conglomerate's portfolio," Khan said. The group is headed by Muhammed Aziz Khan, the group's founder, chairman and Khan's father.

The group is keen to tap the new opportunities arising from China's massive infrastructure initiative.

"If these large government-to-government projects happen under the initiative, there will be larger demand for us," Khan said. "We will be a large beneficiary of that and we hope that happens."

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