The Perils Of Taking Placements

If you were to look at the flow of events from the time Khazanah struck the deal to sell RM1.64bn worth of TNB shares, largely to institutions, foreign and local ... and the shocking sudden tariff reduction by TNB less than 2 weeks later. The shock was not so much in reduction, I meant, a reduction was always in the works with a plummeted oil price scenario. The shock was all the more shocking because of the quantum of the tariff reduction, and also the timing which was much earlier than anticipated. Some of the analysts were looking at a tariff reduction sometime in April-June 2015.

The key is, how much of the tariff reduction by TNB was "known" by Khazanah? Did they have prior knowledge? I am not suggesting impropriety here, but the close chain of events would leave a VERY SOUR taste in the mouths of those fund managers who took up the placement. Of course, its always buyers beware, but still there is sufficient room here for some to question if there was indeed impropriety.

If you place together PNB's buying strategy in TNB for most of the month of January 2015, you can also question if PNB knew anything? Did PNB orchestrate somewhat the price support for a good placement price? I don't know and I don't want to guess. But when you put all the facts together, IT IS NOT CLEAR and TRANSPARENT enough to say every single party operated independently.

Can we try to improve on the transparency by having all declare that nobody knew what TNB's strategy was.

29 Jan 2014

Khazanah selling TNB stake worth up to US$454m 
KUALA LUMPUR: State inves- tor Khazanah Nasional Bhd is selling 112 million shares worth up toUS$454 million (RM1.64 billion) in Malaysia’s largest power group Tenaga Nasional Bhd (TNB), accord- ing to a term sheet seen by Reuters yesterday.

The shares are being priced at between RM14.40 and RM14.60 per share, ac- cording to the sheet, which is equivalent to a discount of about 1.35% to 2.7% to the closing price of TNB shares yesterday. 

The sale will reduce Khazanah’s stake in the country’s largest company by market value to 29.64% from 31.64% 

The sale will reduce Khaz- anah’s stake in the country’s largest company by market val- ue to 29.64% from 31.64% cur- rently, according to Thomson Reuters data. 

TNB on Jan 22 reported a 34.3% jump in its net profit in the first quarter ended Nov 30, 2014 to RM2.35 billion, mainly on higher charges and sales of electricity. 

CIMB Group Holdings Bhd and Credit Suisse are the joint bookrunners for the sale, the sheet showed. — Reuters 

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Net purchases by PNB from Jan 1 till Jan 27, 2015 in TNB: 31.39m shares ~ around RM450m value

Strangely, EPF did not do any substantive buys or sells in TNB from Jan 1 till Jan 27, 2015

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12 Feb 2015

Tariff cut news wipes out RM2.6b of TNB’s market value Counter plunges 11% intraday on concerns its earnings would be affected

BY CHESTER TAY & BEN SHANE LIM 
KUALA LUMPUR: TNB Nasional Bhd (TNB) saw its market value shrink by RM2.6 billion yesterday as investors offloaded its shares on the government’s announcement of a new, lower electricity tariff. 

TNB’s counter, which opened at RM14.94 yesterday, was stable up until the moment when the Ener- gy, Green Technology and Water Ministry (KeTTHA) announced that electricity tariff in Peninsula Malay- sia had been revised downward by 2.25 sen per kilo watt hour (kWh). 

Shortly after the market re- sumed in the afternoon, TNB (fun- damental: 1.3; valuation: 1.8)’s stocks were dogged by negative sentiment on concerns that its earnings would be affected by the lower electricity tariff. 

The counter plunged as much as RM1.64 or 11% to an intraday low of RM13.22, dragging with it the benchmark FBM KLCI, which also tumbled to as low as 1,790.8 points — down 20.18 points or 1.11% — as TNB is one of its 30 component stocks. 

TNB’s counter regained later in the evening to close at RM14.40, down 46 sen or 3.1% from its clos- ing price of RM14.86 on Tuesday, giving it a market capitalisation of RM81.3 billion, down RM2.6 bil- lion from Tuesday’s RM83.9 billion. 

The KLCI also eased in tandem to close at 1,798.95 points, repre- senting a drop of 12.17 points or 0.67%. 

KeTTHA’s tariff cut announce- ment yesterday was rather awkward for the government as the ministry had just told local news agencies last week that there would not be an immediate electricity tariff reduc- tion, claiming that it was already a highly subsidised item, which drew much flak from the public. 
In a statement yesterday, KeT- THA said the revised tariff rate will

be effective from March 1 to June 30 this year. 

“After factoring in the lower fuel cost, KeTTHA wishes to inform that cost savings under the ICPT (im- balance cost pass-through) mech- anism, which can be channelled back to consumers in the form of lower tariff, amounted to RM726.99 million,” the statement read. 

The ICPT is a mechanism that allows the government to pass any fuel cost increase or reduction to consumers. The previous tariff hike on Jan 1 last year — at an average 15% — was seen as generous to TNB in view of falling coal and fuel prices and an improved fuel gen- eration mix. 

The ministry also pointed out yesterday that this latest adjustment is equivalent to a 5.8% reduction to TNB’s average tariff, which is 38.53 sen per kWh. 

Notably, the new revision only applies to domestic and residential

consumers who consume more than 300kWh in a month, said KeTTHA, adding that this is because tariff rate for the initial 200kWh (or so-called Lifeline Band) has been fixed at 21.8 sen per kWh since 1997, and that the subsequent 100kWh (201kWh to 300kWh) has been fixed at 33.4 sen per kWh since 2009. 
For Sabah and Sarawak, the new set of tariff rates means a reduction of 1.2 sen per kWh for Sabah and the federal territory of Labuan (also from March 1 to June 30). Sarawak’s electricity tariff, however, does not fall under KeTTHA’s jurisdiction. 

“This round of tariff reduction means that the federal government will have to maintain its budgetary fuel subsidy of RM260 million a year,” KeTTHA noted. 
Etiqa Insurance & Takaful exec- utive vice-president and head of investment management research Chris Eng is of the view that the reduction in tariff should have a neutral impact on TNB’s core net profits.

“The lower tariff will reduce TNB’s revenue by about RM700 million to RM800 million over the next four months. However, this will be offset by RM500 million to RM600 million in cost over-recov- ery that TNB has recognised over the past few months, as well as an- other RM400 million that will be realised in the next four months,” he toldThe Edge Financial Daily when contacted. 

Hong Leong Investment Bank Bhd analyst Daniel Wong con- curred, saying that the latest ad- justment is merely passing back TNB’s cost savings to consumers. 
“It is not a bad element to TNB, but the negative sentiment in the market today (yesterday) would most probably continue tomorrow (today),” he said when contacted.

Wong also said he would likely lower his target price on TNB’s stock as he had previously priced in a portion of the over-recovery effect. 

Eng said KeTTHA could have made the announcement at a scheduled time to prevent the mar- ket’s knee-jerk reaction yesterday. 

“TNB was well aware of the cost over-recovery that it was experienc- ing, and prudently did not include it in its core net profits. It had also advised the investment communi- ty that a tariff revision should take place at some point to utilise these profits,” Eng said. 

“The government, however, should not have reduced the tar- iff but instead increased the price of regulated gas to remove the pub- lic’s subsidy mentality,” he added. 

Petroliam Nasional Bhd supplies TNB with 1,000 million standard cubic feet per day of natural gas at a subsidised price of RM15.2 per million British thermal unit (mmb- tu). Imported liquefied natural gas that TNB uses costs around RM46.5 per mmbtu.