This article first appeared in The Edge Financial Daily on August 15, 2018

Tenaga Nasional Bhd
(Aug 14, RM15.66)
Maintain buy with an unchanged target price of RM16.30: Tenaga Nasional Bhd’s (TNB) share price was hit yesterday following a continued fall in the Turkish lira. The lira has fallen 24% since late last week. TNB has a 30% stake (purchased for US$250 million back in 2016) in Turkish-based Gama Enerji AS, which operates a portfolio of wind, hydro and gas turbine power plants. Gama Holding AS owns a 50.5% stake and the remaining 19.5% is held by International Finance Corp and Global Infrastructure Fund.

Gama Enerji generated profit after tax of RM52 million in the financial year ended Dec 31, 2017 (FY17) (TNB’s share: RM16 million) accounting for just 0.2% of TNB’s earnings. TNB still carries a RM264 million goodwill from the acquisition of the stake in Gama Enerji. If the goodwill is written off, the impact is just a one-off 4% of TNB’s annual earnings, to give a yardstick.

It has been reported that Gama Holding (Gama Enerji’s major shareholder) has been looking to restructure US$1 billion worth of debt while at Gama Enerji level, is looking to refinance a US$500 million loan it took to construct a gas power plant in 2013. Both Gama Holding and Gama Enerji are private companies, but Gama Enerji has been reported to be Gama Holding’s largest asset. There has also been reports of Gama Holding’s intention to sell off its 50.5% stake in Gama Enerji

If the bulk of Gama Enerji’s debt is foreign debt, there is possibility of a mark-to-market adjustment which could hit earnings by an exceptional amount. While we would presume most of Gama Enerji’s debt is long term in nature (concession backed), if there is any rollover or refinancing of existing debt, there is a likelihood that Gama Enerji will realise some foreign exchange loss. — MIDF Research, Aug 14