KUALA LUMPUR — May 11, 2016: A research note has described Tenaga Nasional’s proposed purchase of 30 per cent stake in an Indian power company as justified despite being slightly on the high side.
TA Securities said that it believed the premium in the US$300 million in cash purchase is justified as GMR Energy Limited (GEL) will enable Tenaga to capture long-term growth in the rapidly growing Indian market, where power supply is constrained.
But the key concern is in the non-renewal risk for GEL’s power purchase agreements which have a remaining tenure of only five years. This applies to 83 per cent of its operational capacity.
“Nevertheless, we believe the scarcity of reliable electricity supply will work to GEL’s advantage. On the other hand, we are comfortable with GIL’s track record and existing working relationships with other Malaysian companies such as Malaysia Airports Holdings,” TA Securities said in its review of the Tenaga proposal.
GEL is part of GMR Group, one of the largest diversified infrastructure conglomerates in India with an asset base of over US$9 billion. The major shareholders in GEL include GMR (51.7%), Temasek (12.4%) and India-based IDFC Bank (5.5%).
Tenaga’s investment in GEL will comprise a select portfolio of power assets with a total capacity of 4,630MW. This is split between current operating capacity of 2,300MW and 2,330MW of pipeline capacity being built.
The portfolio fuel mix comprises coal (2,000MW), hydro (1,980MW), gas (623MW) and solar (25 MW).
Following the review, TA Securities has maintainied a “buy” on Tenaga as it likes the company for its robust balance sheet, stable earnings and potential dividend upside on completion of its capital management study by the year’s end.