KUALA LUMPUR: Standard & Poor's Ratings Services said while Tenaga Nasional’s competition position would have been boosted by 1Malaysia Development Bhd’s (1MDB) power assets, it’s bid valuation and funding strategy would have had a negative impact on the power giant’s capital structure.
The international ratings agency said on Wednesday its ratings and outlook on Tenaga (BBB+/Stable/--; axA+/axA-1) were not affected by the latter’s failed bid to acquire the power assets of Edra Global Energy Bhd from 1MDB.
“Our base-case expectations for Tenaga did not factor in the bid,” it said.
S&P said while Edra's assets would have further strengthened Tenaga's competitive position, particularly in Malaysia. “But the bid valuation and the funding strategy for the acquisition might have led to a weaker capital structure for Tenaga,” it added.
S&P said the details of Tenaga's bid for Edra had not been disclosed. But the fact that Tenaga's bid did not emerge as the winning bid suggested the company seeks to balance its funding profile and leverage levels-- and hence creditors' interests -- with its expansion plans.
“This underpins our view that satisfactory governance measures are in place within Tenaga,” it added.
S&P said Tenaga's dominant position as an integrated power provider in Malaysia underpinned its business risk profile. At the same time, it expected the company's financial risk profile to be mostly unchanged despite an increase in capital expenditure, with the debt-to-earnings before interest, tax, depreciation and amortisation ratio staying below 4.0 times through 2016.
“Our expectations also assume revisions in tariffs for any under- or over-recovery of fuel costs,” it said.
On Monday, 1MDB announced that it had agreed to sell its entire energy assets to state-owned China General Nuclear Power Corp (CGN Group) for RM9.83bil cash.
The buyer will assume all the relevant gross debt and cash of the Edra operating companies, based on a valuation date as March 31, 2015. The deal is expected to be completed in February 2016.
On Tuesday, CGN Group said it did not rule out a possible listing for the power company in the medium term. It added that it would welcome Malaysian investors into Edra at the opportune time.
It said the total asset value being transacted amounted to about RM17bil, and CGN Group intended to further capitalise Edra for the successful delivery of the two major power development projects in Malacca and Kedah.
It would also enable Edra to pursue expansion opportunities in Egypt, Bangladesh and elsewhere, said CGN Group.
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