The Financial Daily reported that TNB has put in the lowest bid for the equity of 1Malaysia Development Bhd’s (1MDB) energy arm Edra Global Energy Bhd (Edra) at slightly above RM8bn, quoting sources familiar with the matter. TNB’s bid is understood to be about 20% lower than the closest competing bid (c.RM10bn) from a foreign consortium (China General Nuclear Power Corp Ltd and Nebras Power QSC), giving the latter an advantage over TNB to win the tender to buy Edra. With an estimated net debt of RM8.5bn in Edra’s books, the bids would place an enterprise value of between RM16.5bn and RM18.5bn for Edra. The final binding bidding deadline for Edra is tomorrow. (Source: Financial Daily)

Comments: We are positive on this development, which suggests that TNB is putting in a reasonable bid for Edra’s assets. At slightly above RM8bn for the equity in Edra, TNB’s bid is quite close to our earlier view that TNB should not pay more than RM8.7bn since the power purchase agreement tenures of Edra’s power assets are now slightly shorter. Besides that, it is understood that the foreign bidders are applying to the Government to remove the 49% foreign shareholding limit and allow 100% acquisition of Edra’s Malaysian power assets.

We maintain our Hold rating on Tenaga with unchanged TP of RM12.00 based on 20% discount to our DCF-based valuation of RM15.00. While the discount is to account for the uncertainty on pricing surrounding TNB’s ongoing bid for Edra Global Energy’s power assets, a reasonable price for TNB for Edra’s power assets would be a rerating catalyst for the stock.

Source: Affin Hwang Capital Research - 5 Nov 2015