TNB  plans  to  raise  as  much  as  RM10bn  (US$2.7bn)  in  an  Islamic  bond issue,  sources  familiar  with  the  matter  said,  a  move  that  comes  after  it agreed to buy 1Malaysia Development Berhad (1MDB) majority stake in a power plant  project. Plans for the issue  are still preliminary, two sources said. TNB, of which sovereign wealth fund Khazanah Nasional Bhd is the biggest shareholder, is looking at a single issue bond rather than a series and  has  approached  several  banks  to  court  proposals,  said  one  of  the sources. (Source: Financial Daily)

Comments:  We  believe  the  news  suggest  that  there  is  a  high  likelihood TNB would  accept the  invitation by the Energy Commission to take  over the  Track  3B,  a  greenfield  2,000MW  coal-fired  power  plant.  We  believe that  the  higher  levelised  tariff  on  offer  for  Track  3B  would  allow  TNB  to earn an appropriate rate of return and address the costs associated with project delays and forex fluctuation.

Given that Track 3B is likely already behind schedule and that one of the terms for TNB is to achieve financial close  by  15  Oct  2015,  it  is  not  too  surprising  that  TNB  would  need  to prepare to raise financing quickly. With the higher levelised tariff on offer (not exceeding 26.67/kWh or up to 5.3% higher than 25.33/kWh currently, we remain cautiously optimistic on TNB’s possible takeover of Track 3B, as this  would  increase  TNB’s  generation  capacity  market  share  and  keep capacity  payments  within  the  group.  We  maintain  our  Buy  rating  on Tenaga with an unchanged TP of RM17.50.

Source: Affin Hwang Capital Research - 24 Jun 2015