· Energy, Green Technology and Water Minister Datuk Seri Maximus Ongkili said the sale of Edra’s power assets to China General Nuclear Power Corp (CGN Group) will not translate into liberalisation of the industry.

· According to media reports, he said the deal is not a precedent for other foreign companies to purchase power generation assets and all future transactions will be vetted by the Energy Commission.

· Under the existing rules, foreign holdings in local power plants are capped at 49%. CGN Group is expected to receive a waiver from this.

· Maximus also assured that the sale would not jeopardise national security as it is a regulated industry. He noted that Edra’s energy assets generate 14% of the domestic capacity vs. TNB’s 50% and Malakoff’s 24%.

· In a media statement, CGN Group said the total asset value being transacted in the deal amounts to ~RM17bil. Recall that on Monday, CGN Group had signed a deal to acquire the assets for RM9.8bil.

· CGN also said that it complies with all local regulations and guidelines. It also intends to further capitalise Edra for the delivery of the two major power developments in Melaka and Kedah (i.e. Project Tuah and Project Solar) to ensure the delivery of electricity on time. CGN Group has total assets amounting to USD65bil with investments in China, South Korea, Australia, UK, and France.

· Based on reports, CGN’s bid was ~23% higher than TNB’s bid of RM8bil for the power assets. The deal is expected to be completed in Feb 2016. The news appeared to have removed an overhang on TNB’s share price, as there were concerns that TNB would overpay for the assets.

· It is expected that CGN’s acquisition will likely go through given the assurance by the Federal government. Nevertheless, there have also been concerns expressed by certain parties in regards to the acquisition. All in, 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).  

Source: AmeSecurities Research - 25 Nov 2015