Monday, August 10, 2015

Tenaga: A low-ball bid or a search for the fair value?

The Edge Weekly has an article entitled "Malakoff, YTL & Tenaga submit lowest bids for Edra" where it was reported that Tenaga's bid was 20% lower than the other bids. It was estimated that Tenaga's bid could be about RM15-16 billion while the higher bids were in the region of RM20 billion. It was felt that Tenaga's bid did not reflect a serious bid.

Diagram: The Edge Weekly report

Is Tenaga's bid a low-ball bid or a genuine bid based on its assessment? I doubt Tenaga would dare to put in a low-ball bid given the expectation to help 1MDB out of its tight financial situation. At the same time, I don't believe Tenaga would want to submit a high bid given its shareholders' concern.

In preparing this post, I read a few articles on 1MDB's power assets acquisition. In particular, I find these 2 articles to be quite informative (here & here). I came away with the impression that EDRA could have been a good energy group if it has not been burdened with an over-leveraged & convoluted financing arrangement. It has some decent assets and good upcoming projects plus a strong management team. Unfortunately, all these came to a naught. And, after the sale of its stake in Project 3B, EDRA would probably never be able to live up to its full potential.

From the Edge Weekly report, it seems possible that Tenaga can avoid buying EDRA's power assets at a high price. If this panned out and if Tenaga can also avoid the call for other form of "national service", then the selldown in the stock may present a good buying opportunity. If you choose to buy into this stock, please exercise careful discretion given the dynamics behind the stock and the current bearish outlook for the whole market. Good luck!

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Tenaga.


Ivan said...

I think Tenaga will be the final bidder for 1MDB power plant asset, probably around RM15-18 bil. Personally, anything more than RM12 bil , consider a premium. Hence, it reflect into today share price (-50sen). More downside toward RM 10.00 -10.50.

Black Ink said...

Hi Alex,

As someone who notices things on charts, I can see a massive Gap in price at 9.50 which
needs to close. I wonder what catalyst is going to causes that to happen...

Alex Lu said...

Hi Ivan,

Your value for 1MDB's power assets of RM12 billion is the total price paid for Powertek, Genting & Jimah's power assets. If the assets were acquired at fair value- no funny mark-up - then that's the fair value for Tenaga to pay to buy over. Let's wait & see what happen after this.

Alex Lu said...
This comment has been removed by the author.
Alex Lu said...

Hi Black Ink

I believe you are referring to Tenaga's price data between the week-ended 25/11/2013 & week-ended 2/12/2013?! I don't see a massive Gap at RM9.50.