This article first appeared in The Edge Financial Daily, on November 5, 2015.
KUALA LUMPUR: Tenaga Nasional Bhd (TNB) has put in the lowest bid for the equity of 1Malaysia Development Bhd’s (1MDB) energy arm Edra Global Energy Bhd at slightly above RM8 billion, according to sources familiar with the matter.
The national utility company’s bid is understood to be about 20% lower than the closest competing bid from a foreign consortium, giving the latter an advantage over TNB to win the tender to buy Edra.
The competing bid, which values the equity in Edra at less than RM10 billion, was jointly submitted by a consortium consisting of China’s state-owned company China General Nuclear Power Corp Ltd (CGNPC) and Qatar’s Nebras Power QSC, sources told The Edge Financial Daily. The two parties had initially come in as separate bidders.
With an estimated net debt of RM8.5 billion in Edra’s books, the bids would place an enterprise value of between RM16.5 billion and RM18.5 billion for the energy unit.
1MDB president and chief executive director Arul Kanda Kandasamy previously said that Edra’s assets are valued at between RM15 billion and RM20 billion. Note that the bidding prices may change slightly, as the final binding bidding deadline for Edra is tomorrow.
Price alone might not be the determining factor as foreign parties are limited to a maximum of 49% equity in local power assets. However, it has been reported that the foreign bidders are applying to the government to remove the restriction and allow 100% acquisition of Edra’s Malaysian power assets.
When contacted, a TNB spokesman declined to confirm the price the company had bid for Edra.
“We are [in] the midst of conducting the confirmatory due diligence process before the final deadline on Friday (tomorrow) for all bidders,” the spokesman said.
TNB president and chief executive officer Datuk Seri Azman Mohd in October said that being the sole offtaker of all power generated in Malaysia, TNB is the best and most logical buyer of Edra’s assets.
Yet, as the 1MDB drama has been a thorny issue among Malaysians, putting in a higher figure could make TNB look like it is bailing out the cash-strapped, debt-ridden 1MDB. Both these entities have a common shareholder which is the Ministry of Finance.
At about RM8 billion, TNB’s bid would meet the ceiling price that PKR’s vice-president and secretary-general Rafizi Ramli wants the government to put a cap on TNB’s purchase of Edra. The opposition lawmaker yesterday filed a motion in the Parliament to cap TNB’s purchase of Edra at RM8 billion, claiming that it is the market value for Edra’s stable of power plants locally and abroad.
Looking at TNB’s balance sheet as at Aug 31, the utility giant had short-term borrowings of RM1.96 billion and long-term borrowings of RM22.71 billion — against shareholders’ fund of RM47.21 billion. Deducting the cash in hand worth RM2.47 billion, its net gearing level stood at 0.47 times.
In a hypothetical scenario where TNB buys Edra’s assets at RM16.5 billion (paying RM8 billion for the equity while assuming RM8.5 billion in liabilities) by using all the cash it has and borrowings for the rest, TNB’s net debt would amount to RM38.73 billion. This is equivalent to 0.82 times its equity.
With the ringgit still being Asia’s worst-performing currency and having weakened against the US dollar by 21.98% year to date, this would make Edra’s power assets relatively cheap for the CGNPC-Nebras joint venture to acquire. Combining their balance sheets would also give them more financial muscle to make their bid.
Edra has 13 power assets in its current stable, with eight of them located abroad — plus the right to build a 2,000mw gas power plant in Melaka. In July, TNB (valuation: 1.20; fundamental: 1.30) purchased a 70% stake in Edra’s Jimah East Power Sdn Bhd, the owner of two undeveloped 1,000mw coal-fired power plants better known as Track 3B, for RM46.98 million.
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