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This article first appeared in The Edge Financial Daily, on December 15, 2015.

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KUALA LUMPUR: Tenaga Nasional Bhd (TNB), which sees a slowdown in domestic electricity consumption next year, is acquiring a 30% stake in Turkish power company, Gama Enerji AS, for US$243 million (RM1.05 billion), as part of the national utility company’s five-year expansion road map to secure new overseas generation capacity.

In a statement yesterday, TNB said it had signed a share sale agreement and shareholders’ agreement with Gama Holding AS, International Finance Corp (IFC) and GIF Holding I Cooperatief UA, a fund managed by IFC Asset Management Co, for the proposed acquisition.

TNB said the proposed acquisition will be made through a special purpose vehicle, which will be incorporated later.

The deal is expected to be completed by the first quarter of next year. Upon completion, Gama Holding’s stake in Gama Enerji will be reduced to 50.5% from 73% currently, IFC 14.5% (from 20.25%) and GIF 5% (from 6.75%).

Established in 2002, Gama Enerji owns and operates a portfolio of thermal, wind and hydro assets in Turkey, as well as a large water conveyance project in Jordan.

TNB said Gama Enerji currently has a 840mw natural gas-fired plant and a 45mw wind power plant under construction in Turkey, which will go live in the third and fourth quarters of 2016 respectively.

“It has also developed and operates a large water conveyance project in Jordan. By 2017, it is expected to have a gross installed capacity of 1,027mw in Turkey,” it added.

TNB noted that the partnership will give it two seats on Gama Enerji’s board with extensive control rights, as well as the opportunity to place key senior TNB professionals, particularly in finance, operations and maintenance, in Gama Enerji’s management.

“TNB’s equity investment in Gama Enerji will result in a strategic partnership that will allow it to pursue regional expansion opportunities in terms of asset acquisitions, greenfield projects, portfolio optimisation and supply market entry,” said TNB chairman Tan Sri Leo Moggie in the statement.

TNB will also form a separate partnership with Gama Holding to jointly offer operations and maintenance (O&M) facility services regionally.

“This will allow TNB to pursue untapped opportunities in the region’s O&M sector as well as leverage Gama Holding’s regional leadership in EPC services,” said TNB.

TNB president and chief executive officer Datuk Seri Azman Mohd said the process to acquire Gama Enerji began in December 2014, and was completed after due diligence by TNB and its financial advisers, Unlu & Co and UBS.

“The investment, which will be financed by a combination of internal funds and external debt, is subject to obtaining regulatory approvals from the Turkish Competition Board, Turkey’s Energy Market Regulatory Authority and relevant Malaysian regulatory authorities,” he added.

Azman also said TNB intends to significantly grow its power generation assets in Turkey, as well as look to expand further into the Middle East and North Africa by actively pursuing acquisition opportunities of existing power assets, as well as bidding for greenfield projects with Gama Holding in Turkey and the surrounding region.

In a separate filing yesterday, TNB said it had been granted a leave by the Kuala Lumpur High Court to commence judicial review proceedings to set aside the notices of the RM2.07 billion additional assessment demanded by the Inland Revenue Board (IRB) recently.

“The High Court also allowed an interim stay of all further proceedings, including the enforcement of the notices, until an inter-party hearing for the stay application is held,” it said.

Earlier, speaking to reporters after the group’s annual general meeting yesterday, TNB chief financial officer Fazlur Rahman Zainuddin declined to comment on whether the additional tax would affect TNB’s financial status.

“This is subject to the outcome of the appeal. We can’t speculate what the result will be. Right now, whatever cash we have in our business is the cash we have.

“We will continue to make the claims and wait for the decision,” he added.

CIMB Research analyst Saw Xiao Jun said in a note on Nov 30 that the quantum of the additional tax would significantly dent TNB’s cash pile and raise its effective tax rates.

Saw said if TNB’s appeal fails, it would have to pay the RM2.07 billion tax and its estimated current cash pile of RM8.9 billion would be cut to some RM6.9 billion.

“The quantum of the additional tax demanded by the IRB is almost unheard of in the history of Corporate Malaysia. RM2.07 billion is equivalent to a value of 37 sen per share or 2.7% of TNB’s current share price and 2.3% of our target price (TP).

“By adding the additional tax to TNB’s tax expenses recognised in FY13 (financial year 2013) and FY14, its effective tax rates would rise from 9% and 10% to 26% and 25% respectively,” Saw said.

In the worst-case scenario, Saw said CIMB would cut its TP for TNB shares to RM13.50 from RM15.70.

Meanwhile, Azman said TNB remains committed to growing its renewable energy portfolio.

Towards this objective, he pointed out that the group is keen on participating in the upcoming competitive bidding exercise by the Energy Commission for new renewable generation capacity.

“We are also participating in feed-in-tariff projects with Felda Global Ventures Holdings Bhd and Sime Darby Bhd, and they have a couple of plants that are being constructed.”

Shares in TNB (fundamental: 1.3; valuation: 1.2) closed down 10 sen or 0.76% at RM13.04 yesterday, with a market capitalisation of RM73.36 billion. The current price represents a RM2.34 or 15% discount to analysts’ consensus TP of RM15.38.


The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

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