1MDB power assets sale lights up ringgit, TNB shares

PETALING JAYA: The sale of 1Malaysia Development Bhd's (1MDB) energy assets to a foreign party has eased the downward pressure on the ringgit, which rebounded as much as 1.79% to 4.2253 against the US dollar yesterday. As at 5pm, the ringgit traded at 4.2425 to the greenback.
1MDB, however, did not comment on whether both Track 4B which is a 2,000MW combined cycle gas turbine in Malacca and 10 x 50MW utility scale solar power plants, which are yet to be constructed, are in the list of assets to be sold to China-based China General Nuclear Power Corp (CGN).
When contacted, 1MDB said it is not able to comment on matters of government policy and regulation. The Energy Commission did not respond to requests for comment.
MIDF Research said it is worthy to observe whether the financial market will define the energy assets sale as "solving" 1MDB's problems and help to reduce the negative sentiments in the market. "Our foreign exchange rate model is indicating that without all of the negative sentiments, the ringgit should currently be at RM3.70 against US dollar," it added.
Tenaga Nasional Bhd (TNB) shares soared as much as 74 sen or 5.51% to RM14.16 yesterday after its failed bid to secure the energy assets from 1MDB relieved concerns over a bailout of 1MDB by TNB. The counter pared some of its gains to close 16 sen or 1.19% higher at RM13.58, with some 26.57 million shares changing hands.
Analysts are convinced that the failed bid by TNB will trigger a share price rally in the stock, which has been under pressure since its takeover of greenfield Project 3B from 1MDB in June.
Pressure mounted after TNB indicated its interest in acquiring Edra Global, which sent the share price to as low as RM10.26 in end-August from a peak of RM16.96 in early February.
Kenanga Research said the sale of 1MDB's energy assets removes market concerns over the possibility of TNB overpaying for the assets, which could trigger a re-rating to the pre-selldown level of 14 times to 15 times price-to-earnings ratio.
Operationally, Kenanga Research said, the change in ownership of these assets will not affect TNB as an energy off-taker as all capacity payments from these power plants are backed by power purchase agreements.
While the RM9.83 billion tag is a good exit price for 1MDB, Kenanga Research said, it may not be attractive for the buyer as it had estimated previously that Edra should be valued at no more than RM9 billion.
"This is based on Malakoff relisting its IPP's effective installed capacity of 6,036MW assets at RM9 billion in May this year, which have a similar life span as 1MDB's effective installed capacity of 5,594MW," it explained.
Hong Leong Investment Bank (HLIB) Research said it is not overly concerned over the entry of CGN into Malaysia's power sector, given that CGN will only control 3,640GW or 15.6% of Peninsular Malaysia's power generation capacity, with the majority still controlled by TNB (54.9%) and Malakoff Bhd (21.3%).
"Furthermore, CGN's power assets are governed by strict power purchase agreements' terms and conditions."
However, HLIB Research said it is unsure at this juncture if CGN is allowed to own 100% of Malaysia power assets or CGN may need to pare down its stake to local partners in the future.
Meanwhile, Association of Water and Energy Research Malaysia (Awer) president S Piarapakaran maintained that strategic assets should be within the control of the government, and that the 49% equity cap for foreigners should be maintained.
Over the longer term, Piarapakaran said, the sale of 1MDB's energy assets to foreign party will see the outflow of money from the country. "I did a brief cost-benefit analysis, I think we lose in the long term."
He reiterated that the energy assets sale should not include the two development rights for Track 4B and solar projects.