Summit Group looks to Singapore for its capital-raising needs

Bangladeshi conglomerate Summit Group said it is looking for capital-raising in the Singaporean market.

Summit Group Chairman Muhammed Aziz Khan, in a recent interview with Singapore's financial daily, The Business Times expressed his definite ideas about the sort of commercial relationship Singapore should have with Bangladesh.

"Singapore should think of itself as a Manhattan, and Bangladesh as one of the states of the US. I think that is becoming the future role of cities like Singapore. Bangladesh, rather than try to raise another capital market, should take advantage of the Singapore capital market -debt as well as equity," he said.

Khan is the chairman and principal owner of the Singapore-based Summit Power International (SPIL), which was set up in 2016 to raise capital for the continued expansion of his power-generation business.

The power plants owned by the company have a total installed capacity of 1,941megawatts (MW). Construction of a further 583 MW of capacity is underway. The company also has a floating storage and regasification unit with a capacity to process 500 million cubic feet of LNG per day.

SPIL is also eyeing deals for power-generation projects in Bangladesh that its partners have taken on, and is looking for opportunities in India and Pakistan.

To fund its ambitions, it had looked into the idea of listing in Singapore - going as far as obtaining an eligibility-to-list letter from the Singapore Exchange (SGX) in 2018, but the company eventually decided against it.

"The valuation we would have been listing at, because of market conditions, was not satisfactory to us," said Ayesha Aziz Khan, managing director and chief executive of SPIL, and also the eldest of Khan's three daughters.

"The feel that we got from the private equity side was much better."

In October 2019, SPIL announced that JERA Co had acquired a 22% stake for $330 million. JERA is owned by Japan's TEPCO Fuel & Power and Chubu Electric Power Co. The deal with JERA facilitated the exit of a group of investors led by International Finance Corporation, the investment arm of the World Bank.

SPIL has not completely abandoned the idea of a public listing though. Ayesha Aziz Khan said: "In the future, when infrastructure (assets) are better valued, when the investors are ready to come into this space in a much more realistic manner, we will again look at it."

In the meantime, SPIL welcomes additional strategic investors capable of adding value to the business. But it would have to be at a significantly higher valuation than the $1.5 billion at which JERA got in.

Power generation is theoretically a stable business. Revenues are backed by long-term agreements with state-owned entities, and earnings are shielded from fluctuations in fuel costs.

Ayesha Aziz Khan said: "At any other infrastructure or power generation company in Asia, there are always two or three assets that have challenges - either they are not getting paid, or there is a contract dispute with regulators."

SPIL has managed to ensure that all its portfolio assets generate positive cash flow, she added. "All the contracts are met, all the obligations to the regulators are being met."

Investors focused on long-term returns are likely to be willing to pay up for this track record, she continued. "When we do the next capital raise for Summit Power International, we expect to be able to get the value for this well-structured portfolio of assets that we have."

Aziz Khan said he became interested in investing in power plants early in his career as a businessman. As an importer of plastics into Bangladesh, he found that his shipments were often delayed by power outages at the port.

He had asked the authorities for clearance to build a power plant in an affected port so he could work unhindered, but Bangladesh did not, at that time, allow private-sector investment in its power-generation sector.

In 1996, Bangladesh lifted this restriction. He moved in and built a power plant in Khulna, a 100 MW facility which went into operation in 1998 as the first independent power plant in Bangladesh, he said.

The Khulna plant, which is still part of SPIL's portfolio, had its capacity expanded to 250 MW. The investment landscape for power generation in Bangladesh has since changed significantly.

The country proven adept at promoting economic growth and reducing poverty, and is now on the radar of global investors. Its international profile was boosted recently when the International Monetary Fund (IMF) forecast that its per capita GDP would exceed India's in 2020. Meanwhile, electricity usage has become more efficient.

"Internationally, the requirement of electricity has fallen because of LED bulbs, better efficiency, better metering, better transmission and distribution systems," Khan said.

Also, with the growing importance of green energy, Bangladesh could eventually be importing some of its electricity from neighbouring countries. Bangladesh does not have as much opportunity for hydroelectricity, unlike India, Nepal and Bhutan, he noted.

Another big shift in the infrastructure sector is the steep decline in funding costs, even for emerging markets such as Bangladesh. With Covid-19, it seems likely that interest rates will stay low while growth in electricity demand may be curtailed.

Against this backdrop, SPIL has widened its hunt for opportunities in power generation beyond Bangladesh's borders. Among other things, Khan said the company is exploring the possibility of investing in Indian hydropower projects.

Over the longer term, he sees SPIL expanding upstream, into the business of supplying natural gas and other fuels, as well as downstream, into the fields of electricity transmission and distribution.

SPIL is also acutely aware of the growing focus on environmental, social and corporate governance (ESG) issues. Ayesha Aziz Khan said: "You cannot invest in projects that are not sustainable. You cannot invest in projects that are causing any kind of diseconomy or harm to general society. And, we wouldn't want to do that either.

"Meeting all these parameters and yet having a good shareholder return is where the challenge lies, and that is what SPIL hopes to bring to investors and financiers in Singapore."

SPIL has made board appointments to achieve these goals, she said: "Both our strategy and investment and audit committees are headed by independent directors who are well-recognised in Singapore."

Singapore's Former Cabinet minister Lim Hwee Hua heads SPIL's audit committee, and former Sembcorp Industries chief executive Tang Kin Fei heads its strategy and investment committee.

Aziz Khan is one of seven sons. His father was in the British Indian Army, but later went into construction.

"I did not inherit his businesses," said Khan, who went on to build own fortune by importing plastics and exporting fertiliser and molasses.

"I started those businesses, and I probably got the opportunity because Bangladesh became independent and most of the businessmen were in West Pakistan. So, there was a vacuum," he said.

Three of his brothers eventually joined his ventures. He has also kept his children involved in the business. Ayesha Aziz Khan recounted: "I would go to the office with him on weekends. He always encouraged us to know what it was all about."

She and her sisters and several cousins now work in the group.

Besides power generation, the Summit Group owns significant interests in ports and fibre-optic networks in Bangladesh. These units may turn to Singapore for their future capital raising needs.

"Singapore has a legal, financial, capital ecosystem that Bangladesh can take advantage of," she said. "It is a very good synergy."

Aziz Khan said that the Summit Group is in talks with "various parties" to lay fibre-optic cables connecting Bangladesh to the rest of the world through Singapore.

"Data usage in Bangladesh is increasing exponentially, and we would require much more connectivity to the whole world."

He views the closer commercial ties between Singapore and Bangladesh as well as other countries in the region as something of an antidote to the reversal of globalisation and the growing tensions between China and the US.

"We shouldn't be pulled into these shortsighted arguments these countries have. Instead, countries in this region should try to leverage the competitive advantages of one another. We should have a more cooperative attitude among ourselves."