Saratoga set to sell 51% Medco Power’s share

Photo by Sarulla Operations

JAKARTA (TheInsiderStories) – Indonesian private equity firm PT Saratoga Investama Sedaya Tbk (IDX: SRTG) has rumored to sell 51 percent share of PT Medco Power Indonesia to investors, several sources said.

On Dec. 16, Saratoga acquired 51 percent shares of Medco Power from PT MedcoEnergi International Tbk (IDX: MEDC) with total amount US$112 million.

Previously, the investment firm owned by tycoon Edwin Soeryadjaya denied that it would divest its ownership in Medco Power. But Director of Saratoga Andi Esfandiari, said the company will revamp its investment portfolio.
In the near future, SRTG will release its stake in PT Medco Power Indonesia. Saratoga is negotiating with Thai companies over the shares divestment at Medco Power.
Last year, Saratoga booked dividend income of Rp622 billion contribution from the investee companies. The President Director Michael W.P. Soeryadjaya explained that the record in dividend income reflected the solid performance of its investee companies.
This is also attributable to Saratoga’s discipline in applying its full-cycle-investment strategy of invest-grow-monetize.
“As an active investment company, we always aim at reaching the full cycle of investment wherein we do not only invest, but are actively involved in growing and expanding the company

to reach its full potential. Most of our investee companies reach this stage, which showcases a great combination of well-founded investment and growth strategy and strong execution,” said Michael.

The strong performance of Saratoga’s investee companies in 2016 reflected in its investment in natural resources and consumer sector. In the natural resources sector, PT Adaro Energy Tbk (IDX: ADRO) performance grew distinctively due to the recovery in coal prices after reaching the lowest point in 5 years and financial closure of Central Java power plant
project with the capacity of 2 x 1,000 MW. This fundamental strengthening has successfully boosted ADRO’s share price from Rp515 to Rp1,695 per share in 2016.

In the consumer sector, PT Mitra Pinasthika Mustika Tbk. (IDX: : MPMX) continues to strengthen its performance driven by revenue growth in the auto parts customer segment as
well as distribution and retail. The solid performance has brought MPMX’s share in 2016 from Rp489 to Rp820 per share.

With the positive performance and as a reflection of Saratoga’s commitment to shareholders, in 2016, Saratoga also distributed dividends for the first time since its IPO in 2013 of Rp86 billion or Rp32 per share for full year 2015 result and interim dividend of Rp165 billion or Rp61per share for 2016.

In 2016, Saratoga posted an investment income of Rp6.34 trillion – Rp3.39 trillion of which was contributed by the one-off adjustments, which marked the transition from equity accounting to fair value accounting treatment.

Meanwhile, the increase in the investee companies’ share prices during 2016 period contributed Rp2.94 trillion, which was mainly attributable to the increase in ADRO & MPMX shares.

As part of the change in accounting treatment, the company recorded a net profit of Rp5.67 trillion with total assets of Rp25.1 trillion, up 51 percent compared to Rp 16.7 trillion in 2015.

This result better reflected the performance of Saratoga as an active investment company. Saratoga is the first public company to implement SFAS 65 accounting standard in Indonesia.

As an active investment company, Saratoga consistently initiates new investments in 2016 to strengthen its three investment pillars, like Natural Resources, Infrastructure and Consumer.

Following a thorough analysis and careful consideration, in 2016 Saratoga acquired 5.63 percent shares in PT MGM Bosco Logistik, one of the leading cold-chain logistics companies in Indonesia.

Saratoga also invested in PT Famon Awal Bros Sedaya – a corporate group that currently owns and manages four of Indonesia’s prominent hospitals under the brand of RS Awal
Bros (RSAB Group).

The hospitals under FABS have been operating in several major cities in Indonesia, such as Jakarta, Bekasi, Tangerang, and Makasar (FABS Hospital Network).

2016 was also a good year for Saratoga when it comes to divestment. During the first quarter fo 2016 tge company divested from PT Pulau Seroja Jaya, a shipping company that provides marine chartering services of tugboats and barges that we invested since 2008, for Rp98 billion.

In the fourth quarter, Saratoga divested some of their palm
plantation assets of PT Provident Agro Tbk (IDX: PALM) with a market premium price per hectare. Lastly, in the first
quarter of 2017, the private equity firm managed to divest from PT Lintas Marga Sedaya, a long term toll-road
construction investment project that we invested since 2006.

It is with persistent hard work and high conviction of the project for the past 10 years that drove us to complete the project. The divestment was closed for Rp900 billion.

Meanwhile, to support national energy resources and demand, Saratoga through its investee company, Medco Power starting from 18 March 2017 has commenced commercial operations of the first unit of the Sarulla Geothermal Power Plant with a capacity of 110 MW.

The Sarulla project is one of the largest geothermal power plants in the world with up to 330 MW total capacities in one single contract, and consists of three phases. The Second
and Third phases are scheduled to start commercial operations in 2017 and 2018. Power generated from Sarulla Geothermal Power Plant is sold to Perusahaan Listrik Negara (PLN)
over a period of 30 years.

It is owned and will be operated by Sarulla Operations Ltd, a consortium of Medco Power (27.5%), US-based Ormat Technologies (12.75%), Japan-based Itochu Corporation (25% and Kyushu Electric (25%).

It has a joint operating contract (JOC) with the concession holder PT Pertamina Geothermal Energy (PGE), a subsidiary of state-owned energy company PT Pertamina.

The construction of phase one started in 2014 and its commercial operation started in March 2017. The other two phases are expected to be commissioned in the second half of 2017, and 2018.

The Sarulla plant is one of the private power plants under the second round of 10,000MW programme announced in 2004 by state-owned utility producer PT Perusahan Listrik Negara (PLN).

Financial closure of the US$1.17bn project was announced in May 2014. The Japan Bank for International Cooperation (JBIC) signed a $492m loan agreement with SOL in March 2014.
The other banks involved in the financing include Asian Development Bank, Bank of Tokyo-Mitsubishi UFJ, ING Bank, Societe Generale, Sumitomo Mitsui Banking Corporation, Mizuho Bank, and National Australia Bank.
In April 2013, SOL signed a JOC with the project’s concession holder PT Pertamina Geothermal Energy, which grants it the rights to use the geothermal field. In the same month, the company signed an energy sales contract with PLN.
The plant is fueled by two steam production and injection reservoirs named Silangkitang and Namora-I. The first unit was constructed at Silangkitang and the other two units are being built at Namora-I.
The power from Silangkitang is transmitted to a substation at Namora-I via a 20km-long, 150kV transmission line. This serves as the interface point where PLN constructs a new transmission line to transmit power to the national grid.
Indonesia depends largely on oil to produce electricity. Efforts to reduce dependence on the oil are underway. Since 2003, the government has negotiated with 26 independent power projects.
The country is already facing an electricity crisis and blackouts in regions such as Java. By 2025, the nation intends to achieve the target to produce 5GW of electricity from geothermal sources.

To allow private companies to sell the power directly to consumers, plans to end PLN’s monopoly are underway, however they will have to continue to use PLN’s transmission network.