TNB eyes overseas growth, aims at 20% of profits from abroad

New markets: (from left) Azman, Moggie and Fazlur at the briefing. Azman says TNB will look outside of Malaysia to diversify its revenue.

KUALA LUMPUR: Tenaga Nasional Bhd (TNB) is aiming to derive 20% of its profits from overseas by 2025 to offset slowing growth locally.

“There has been a decoupling of electricity demand from gross domestic product (GDP) growth locally, so we will look outside of the country to diversify our revenue,” TNB president and chief executive officer Datuk Seri Azman Mohd said at a press conference after the company’s AGM.

“The reason for this is primarily because Malaysia is moving towards becoming a service-driven economy. I do not think we will continue to see energy demand growing at 1.0 or more times to the GDP growth of Malaysia. We think electricity demand growth will go down in relation to the GDP,” Azman said.

TNB chief financial officer Datuk Fazlur Rahman Zainuddin added that the group was looking at opportunities that would give it long-term sustainable growth.

“We would like to have a balanced portfolio. We cannot just look at one country or a particular region. We want to have a balanced portfolio of countries with high growth and stable revenues. The businesses we will go into will be electricity-related and not more than that,” Fazlur said.

“We would like to add more of the (electricity)-generation type of businesses. It could be in conventional generation like coal, gas, hydro or renewables. We are looking at a whole suite of investment opportunities. We are looking at an increase in our renewable energy assets,” he added.

The group, which had recently announced two overseas investments through a 30% stake in GAMA Enerji, Turkey, and a 30% stake in GMR Energy, India, said that overseas contribution was now at a negligible level and would be so even in financial year 2017 (FY17).

“Our 10-year journey has a focus on renewable energy and international expansion. Now is the beginning of this journey. In 2016, we had been busy with two acquisitions – these are the first steps,” Azman said.

TNB said the target is for overseas assets to contribute around 5,000 MW of net capacity by 2025. “At the moment, the net capacity (from overseas) is only 2,000 MW coming from India and Turkey. So, we have another 3,000 MW to go,” Fazlur said.

TNB did not divulge details on which countries it would invest in next, but said it would take an open approach for as long as its risk appetite allows it to do so.

“The decisions (on where to invest) are very fluid because we always have to conduct risk assessments. If our risk appetite allows for the investment, then we will continue (be open) to invest in those countries. We are also looking at Europe, where the regulatory framework is well-established,” Azman said.

“There are good investment opportunities in developed countries because of their disciplined legal and regulatory framework”

TNB chairman Tan Sri Leo Moggie said the move to go overseas was to broaden its revenue stream in addition to still investing domestically. “When we go outside, we will need to do a lot of due diligence in terms of country profiling or business advantages. We will also have to be very careful in evaluating any potential investments. Lest we forget, our core business is in the energy supply industry and this is where our strength is,” he said.

Fazlur also said the expansion would be funded via a combination of internal and external funds and that dividends would be sustainable.

“We have announced a dividend policy for financial year 2017 (FY17) ending Aug 31 of paying out 30% to 50% of the group’s profits. And this is actually a better policy compared to what we had in the past, where the payout depended on free cashflow. However, if we were to convert this into a percentage of profits in FY16, it is about 24.6% of group profits,” Fazlur said.

“Our dividend policy at the low end moving forward is 30%, so we believe this policy is actually sustainable, and we foresee that dividends will not be affected. TNB’s financial position is on a sound footing right now with a healthy gearing level. We have the capacity to borrow for further investments, if necessary,” he added.


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