SINGAPORE'S Temasek Holdings on Monday launched the sale of a power generating company in a deal that may raise about US$3 billion.

Senoko Power, which generates about 30 per cent of the city-state's electricity, is the second of three power companies that Singapore hopes to sell by mid-2009.

The first power company, Tuas Power, was sold to China's Huaneng Group for S$4.2 billion in March this year.

The sale of Senoko Power Ltd alongside Temasek's third utility PowerSeraya will be completed by the end of 2009, Temasek said on Monday in a statement. Built at a cost of S$2.6 billion, Senoko's 3,300 megawatts of capacity supplied 30 per cent of the island-nation's electricity needs last year.

The sale of Senoko Power comes at a time when mergers and acquisitions have slumped as the collapse of the US subprime mortgage market restricts banks from lending and curbs corporate purchases. Transactions in Asia's power industry have totalled US$12.9 billion this year, less than a fifth of those in 2007, according to data compiled by Bloomberg.

'Of course there's the market downturn and rising fuel costs, but Temasek has got more traction going from the sale of Tuas,' Mr Simon Powell, head of power research at CLSA Ltd. in Hong Kong told Bloomberg.

'The price matters, but there were parties including banks that were eager for Tuas and lost out, and Senoko offers a chance to get into a stable cash flow business.'

Senoko Power earned S$245 million before interest, taxes and depreciation on revenue of S$2.49 billion for the year ended March 31, 2008.

Sembcorp Industries Ltd., whose electricity unit accounts for about half of profit, will bid for Temasek's two power generators after losing out to China Huaneng Group for Tuas Power, company President Tang Kin Fei said on June 5.

In March, Beijing-based China Huaneng agreed to pay S$4.24 billion for Tuas, the smallest of Temasek's three power generators that supply 90 per cent of the island-state's electricity.

Temasek, which manages more than US$100 billion in assets, last year revived a plan abandoned six years ago to sell the Singapore companies in order to tap rising demand for power assets.

It has said it plans to sell its utilities, which also include Power Seraya Ltd, by early 2009.

Senoko Power and Power Seraya were transferred in 2001 to Temasek from Singapore Power Ltd, the main electricity supplier, after the government separated ownership of generators from transmission and distribution. Temasek had owned Tuas Power since 1995.

The three generators are barred from holding each others' shares, according to rules set by the Energy Market Authority.

The MSCI index of regional utilities declined 20 per cent this year, compared with a 22 per cent fall in the broader MSCI Asia Pacific Index, excluding Japan.

Introducing Competition

The Singapore government has been gradually introducing competition in parts of the economy, including banking, utilities and telecommunications. Deregulation of the electricity industry started in 1995 and the gas market in 2000, said Bloomberg.

After completing the second phase of liberalisation in 2006, 75 per cent of total electricity demand was open to retail competition, and the total number of so-called contestable consumers rose to 10,000, according to the Energy Market Authority.

Contestable consumers are free to select which retailer will supply their electricity.