Concerns over TNB bid for 1MDB unit allayed, share price up

Under pressure: 1MDB logo is seen in Kuala Lumpur. TNB’s share price has been under pressure due to the perceived bailout of 1MDB. — AFP

PETALING JAYA: News that Tenaga Nasional Bhd (TNB) has put in the lowest bid for Edra Global Energy Bhd has allayed concerns that the company may have put in an over-priced bid for the latter’s power assets.

The stock surged to its highest since June this year, jumping by as much as RM1.06 in early trade. It closed 56 sen higher at RM13.20, with a market capitalisation of about RM74bil.

The counter was the top gainer of the day.

The surge in interest has pushed the benchmark FTSE Bursa Malaysia KL Composite Index up 2.92 points to 1,688.54.

TNB’s share price has been under pressure due to the perceived bailout of 1Malaysia Development Bhd (1MDB). Analysts said bailout fears had lingered since 1MDB revealed that it was looking for buyers for its power assets.

The news went down well with many, as the utility giant is unlikely to be chosen by 1MDB, given its low bid, thus allaying concerns that the utility giant is bailing out Edra. The worry that TNB may have put in an over-priced bid is unlikely to materialise, analysts said.

According to reports, Qatar’s Nebras Power QSC is currently in talks to partner with China General Nuclear Power Corp in the bid for 1MDB’s power assets.

“We are positive about this development, which suggests that TNB is putting in a reasonable bid for Edra’s assets.

“At slightly above RM8bil for the equity in Edra, TNB’s bid is quite close to our earlier view that TNB should not pay more than RM8.7bil since the power purchase agreement tenures of Edra’s power assets are now slightly shorter,” Affin Hwang Capital Research said.

Affin Hwang has maintained its “hold” call on TNB, with an unchanged target price of RM12 based on a 20% discount to its discounted cashflow-based valuation of RM15.

While the discount is to account for the uncertainty on the pricing surrounding TNB’s ongoing bid for Edra’s power assets, a reasonable price for TNB for Edra’s power assets would be a re-rating catalyst for the stock.

Meanwhile, AmResearch said that with an estimated net debt of RM8.5bil, the bids would place an enterprise value of RM16.5bil-RM18.5bil on Edra.

If based on pricing, the report noted that the consortium may have an advantage over TNB to win the tender to buy Edra.

“Based on our back-of-the-envelope calculations, TNB’s net gearing for the financial year 2016 forecast would increase to 0.7 times from 0.4 times if it were to acquire Edra at RM16.5bil. The final binding bid for Edra is due tomorrow with results expected by year-end.

“In our opinion, we think that the sale of Edra to a foreign party may be positive for TNB, as it would not strain TNB’s balance sheet. As at end-August, TNB’s net gearing stood at 0.5 times,” AmResearch said.

Nevertheless, pricing may not be the sole determining factor, as foreign parties are limited to a 49% equity stake in local power assets. However, the foreign parties are said to have applied for the restriction to be removed.

StarBiz had reported over the weekend that 1MDB was close to the finalisation of the sale of its power unit Edra and it was likely to be a foreign bidder.

The sale of Edra’s power assets, valued at RM18bil in 1MDB’s books, is part of the latter’s rationalisation plan to reduce its debts of close to RM42bil.

1MDB had paid RM12bil for the equity of the power assets under Edra and assumed debt worth RM6bil when it completed the purchase of the power assets.

It was reported that 1MDB did not put a reserve price on Edra, but had hoped to sell the energy assets at a price close to its book value.

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