This article first appeared in The Edge Financial Daily on December 12, 2018
Tenaga Nasional Bhd
(Dec 11, RM13.54)
Maintain outperform with an unchanged target price (TP) of RM16.86: Tenaga Nasional Bhd (TNB) announced that it had entered into an agreement with GMR Bajoli Holi Hydropower Pvt Ltd (GBHH) of India, GMR Energy Ltd (GEL) and GMR Infrastructure Ltd (GIL) to subscribe to a compulsorily convertible debenture (CCD) issued by GBHH for 2,256 million Indian rupee (RM133.2 million). The CCD has a tenure of 30 years and will be converted into an equity stake of about 30% before the end of the tenure to facilitate GBHH’s construction of a 180mw run-of-river hydroelectric power plant within the Himalaya range in the state of Himachal Pradesh, India. Overall progress of the project stands at 78% and the plant is expected to commence its commercial operations by October 2019. We understand that the acquisition will not have a significant impact on TNB’s earnings in the near term and therefore have maintained our forecasts and estimates. We have maintained our “outperform” call on TNB with an unchanged TP of RM16.86.
GBHH is majority owned by GEL, which is 51.73% owned by GIL. TNB has a 30% stake in GEL. GBHH is a special purpose vehicle formed by GEL for the purpose of developing the Bajoli Holi Hydroelectric Project which will have an installed capacity of 180mw. It is a greenfield project with a 40-year concession from the state government of Himachal Pradesh. We understand that it offers attractive and stable returns with a 17-year power purchase agreement and a reputable AA-rated off-taker. The completion of this investment is subject to the approval of Bank Negara Malaysia and Malaysia’s finance ministry.
The proposed investment of 2,256 million Indian rupee will be funded by a combination of internally generated funds and borrowings. The acquisition will fit into TNB’s expansion plan to increase its renewable energy (RE) portfolio. Once fully operational, the proposed investment will raise TNB’s total international RE portfolio to about 370mw. — PublicInvest Research, Dec 11