Project 3B takeover plan by TNB from 1MDB drags down TNB shares

  • Business
  • Friday, 19 Jun 2015

PETALING JAYA: News that the Government has approved Tenaga Nasional Bhd’s (TNB) plan to take over Project 3B, a power plant that had been earlier awarded to 1Malaysia Development Bhd (1MDB), sent the former’s stock plummeting by some 4.26% or 56 sen, wiping out some RM3.16bil from its market capitalisation.

TNB’s shares plunged by as much as 86 sen to RM12.30 in intra-day trading just after the Government announced its approval for TNB to take over the project. The counter later recovered to close at RM12.60.

TNB’s share price dip wiped out 5.4 points from the FTSE Bursa Malaysia KL Composite Index, leading the index to end the day with a 8.74-point drop.

The latest development confirmed a StarBiz report on May 9 that said TNB would participate in the 2,000MW coal-fired power plant project in Jimah, Negri Sembilan, as the national utility company had also started talks with Mitsui Co Ltd, which has a 30% stake in Project 3B.

However, TNB said in a filing with Bursa Malaysia that it had “yet to receive any official notification from the Government in relation to TNB’s takeover of Project 3B from 1MDB”.

Dealers said TNB’s share price drop was due to selling mostly by foreign shareholders, who feared that the acquisition price of Project 3B would be high.

However, some local fund managers opined that TNB’s shares were oversold yesterday, considering that the possibility of the utility giant taking over Project 3B had already been factored into TNB’s share price.

“This is a good time to pick up the TNB stock. It’s clearly oversold,” Etiqa Insurance and Takaful head of research Chris Eng said.

He said assuming TNB did take over Project 3B, it would be good if TNB secured the tariff hike for project 3B that it had been requesting, and also that the price TNB would pay 1MDB for Project 3B should not be more than RM300mil.

“Foreign investors likely feared the association of this deal with 1MDB and sold without realising that this is, in fact, a greenfield power plant with good prospects.

“The silver lining is that by (TNB) buying just 3B, it reduces the pressure (for TNB) to take over all of Edra’s assets,” Eng added.

As at first half to Feb 28, 2015, TNB’s foreign shareholding stood at 27.56%.

1MDB owns a 70% stake in project 3B. It won the project in March 2014 through an open tender.

The expected commercial operation date (COD) for the first unit of 1,000MW at Project 3B is Nov 15, 2018, while the second unit of 1,000MW is May 15, 2019.

AllianceDBS Research analyst Quah He Wei believes that TNB’s shares were oversold. He said speculation that TNB would take over 3B has been known for some time and priced in.

In a report dated May 11, CIMB Research had opined that if TNB were to undertake project 3B, it would be given the opportunity to revise the terms of the agreement. This is because the original tariffs of Project 3B had suited 1MDB’s cost of capital.

“We think that this news may seem negative to the public, given the association with debt-laden 1MDB and the impression that it is another bailout. However, we believe that TNB would benefit in the long run if it takes on project 3B under revised terms,” CIMB had said in the report.

The construction of Project 3B has been delayed due to issues with 1MDB’s funding. If this is prolonged, the power plant may not meet its COD target, which would have a negative impact on the nation’s electricity grid and cause problems for TNB in the future.

However, analysts have pointed out that while owning and operating 3B might be positive to TNB in the longer run, it would have to incur massive start-up costs and bear an estimated RM11bil in capital expenditure and bloat its balance sheet due to the potentially low returns from this project.

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