- 1Malaysia Development Bhd (1MDB) is expected to sign an agreement soon to sell the control of its power assets (held under Edra Global Energy Bhd) to a Chinese-led bidding group, reported Starbiz over the weekend.

- Quoting sources, the paper said the sale to the consortium – which includes China General Nuclear Power Corp (CGN) and Qatar’s Nebras Power QSC – may be announced as soon as this week.

- The consortium’s bid is reported to be ~RM10bil, which is higher than TNB’s RM8bil offer. The Edge Financial Daily previously reported that Edra’s enterprise value may amount to RM16.5bil-RM18.5bil – assuming that Edra has a net debt of RM8.5bil.

- Starbiz noted the deal would be conditional on CGN obtaining at least a 50% stake of the business. Foreign parties’ stake in domestic power assets is currently capped at 49%, but it was reported that the foreign parties have applied for the restriction to be removed.

- If the deal with the foreign consortium goes through, 1MDB is expected to retain a minority stake in order to ride on Edra’s future upside. Edra has 13 power assets (eight foreign and five domestic plants) in its portfolio. Recall it paid ~RM12bil for these assets and inherited debts of RM6bil.

- This development is seen as positive for TNB as there have been concerns that TNB would overpay for the power assets and strain its balance sheet. As at end-Aug, TNB’s net gearing stood at 0.5x.

- In a separate report, Starbiz also said that SIPP Energy has submitted two different options to the government to develop the Project 4A power plant. The new submission is said to include a revised tariff rate and a higher plant capacity. The report noted that SIPP Energy had appointed international consultant Sinclair Knight Merz to negotiate the tariff proposal with the government.

- Recall that SIPP Energy was part of a consortium (with TNB and YTL Power), that was awarded the project in June 2014 to build a 1,000MW-1,400MW power plant. However, YTL Power and TNB had since pulled out of the project for various reasons. According to previous reports, SIPP Energy had received a 3-month extension (from 15 Oct) to achieve financial close for the project. The project is reported to cost RM8bil-RM13bil.

- We maintain our OVERWEIGHT stance on the sector, with BUY calls for TNB (fair value: RM14.80/share) and Malakoff Corp (fair value: RM2.10/share). The latter’s 3QFY15 results will be released today.

Source: AmeSecurities Research - 23 Nov 2015