Investors eye repeat high returns from TNB bonds

  • Business
  • Tuesday, 28 Jan 2003

INVESTORS burned by US$124bil of defaults in the US last year are looking to Tenaga Nasional Bhd (TNB), which had one of Asia’s top-returning bonds in 2002, for a repeat performance in 2003. 

TNB’s 7.5% dollar bond maturing in January 2025 returned 29% in 2002, including reinvested interest, Bloomberg data shows. South-East Asia’s biggest utility said it planned to sell more debt this year, after two sales of commercial paper last week in Malaysia to raise ringgit. 

Chairman Datuk Dr Awang Adek Hussin says the company will stay profitable next year, while government forecasts for 6.5% growth may boost demand for electricity in 2003. The government-controlled company may prove a refuge after the failures of WorldCom Inc and Enron Corp in the US last year. 

“We are very happy with our holdings,” said Robert Kinsey, who helps oversee US$25bil at Arizona-based Pilgrim Advisors Inc. The fund, now a unit of ING Groep NV, bought its 7.625% bond due in April 2011 in September while US corporate bonds faltered. “We bought TNB as an alternative to US corporate bonds, which were undergoing some traumatic events.” 

Moody’s Investors Service rates TNB at Baa3, the lowest investment grade and two levels below the country’s rating. 

Standard & Poor’s BBB+ rating on the company is 2 levels above junk and one level below Malaysia’s rating. 

Besides ING, Fidelity Investments, Prudential Insurance Company of America, and Loomis Sayles & Co. are among owners of TNB debt, according to regulatory filings last year. TNB’s US$350mil of 2025 securities were among the best-performing bonds among 120 Asian credits tracked by Deutsche Bank AG. 

An index of bonds issued by US gas and electric utilities with BBB and A ratings that mature in 15 years and longer rose almost 7% last year, according to figures compiled by Merrill Lynch & Co. TNB’s US$600mil of 7.625% bonds maturing in 2011 draw more attention because there’s more of them to go around. 

Investors have been accepting a smaller risk premium to hold the securities. With a yield of 5.98%, the bonds pay 2.05 percentage points more than like-maturity US notes, down from 2.88 in October. 

Faster growth in Malaysia may help TNB outperform again, traders said. The US economy probably expanded at a 1% pace in the final 3 months of 2002, a quarter of the July-to-September rate, according to the median expectation of 46 economists surveyed by Bloomberg News. – Bloomberg  

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