Who is Energy World International (EWI) ?

Energy World International is part of a larger organization called Energy World Corporation ( EWC) and has it’s headquarters in Hong Kong. The company primarily operates in the Asian market and has interest in Australia.

Having reviewed all the entities which submitted a bid, I came to the realization that EWI was the only company that had true experience in delivery a power generation facility of the magnitude that we required. EWI claims to be a vertically integrated company and a visit to their website will confirm this.

They claim to have their own LNG supply, even though I have not be able to independently verify this claim. EWI is the energy section of EWC and they also have a construction arm, which is involved in a number of HOTEL projects around Asia. So in essence they can deliver a power plant using their own company and is able to even supply the fuel required to run the plant.

EWI is also looking to develop gas fields in Indonesia and Australia and one other interesting thing about the company is its long term Power Purchase Agreements in Australia and Indonesia.

In terms of its finances, here is where it gets a bit tricky. EWI annual financial report shows the company having an asset base on only US$940M, which is just 1.25x the value of this US$737M bid submitted by EWI for a 478MW  CCGT power plant.

Retained earnings at the end of June 2012 for EWC ( the entire group) was just $65M, which does not leave a lot of money for EWI to use as equity in financing such a massive project.

Borrowing by EWC  jumped by approx US$200M moving from US$76.7 to US$262M, this was to facilitate the Sengkang Power Plant and the Sengkang Expansion.

Total equity listed on the balance sheet for EWC was US$552.97M  and with debts of US$262M, this gives a debt to equity ratio of  47%. Now recall  EWC have  retained earnings for the entire group of only US$65M. The group however has cash holding of US$128M and a further reserve of US$184 in both current and non-current cash accounts, but this US$184M is  all pledged  as security towards other loans and so are not available .

EWC could therefore easily forward to the OUR the US $7.37M bid bond required within  the next 15 days, but the real problem comes in the acual financing of the project.

If EWC ( parent company of EWI) decided to put up say 50% of the cash it has available as its equity in the project, that would only represent US$64M, which would leave the company with a financial model of approx 86% debt and 14% equity.

Further examination of the balance sheet reveals that the company could only pledge assets of US$567M, which is made of of Plant, Equipment and Property plus its interest in the oil fields.

If we were to add the equity of $62M + $547M , that would give us a total of US$609M, still leaving a short fall of US$128M.  Now this is extreme and no company would pledge all its assets as security for a loan, so the model above would not work.

So let’s assume that a lender decides he would be willing to give EWC a loan with a lien against 50% of the assets, that would represent assets of US$304M and the loan would not be one for one ie the loan would be like US$200M while holding assets for more given the problems it may have disposing of the assets to recover this loan.

The above scenarios shows the problems EWI would have in undertaking the single largest project in it’s history and would have to seek equity partners in this project as it’s not in a position to finance it from its own equity and loans. I guess EWI would now be in search of other entities who would be joint venture partners in taking on this project.

I will in the coming weeks try to complete some more analysis on the EWI from a financing standpoint, but I have to run now.

 

Later..