Short Position -Edra should go to highest bidder
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20151018
Short Position -Edra should go to highest bidder
Saturday, 17 October 2015
Edra should go to highest bidder
TENAGA Nasional Bhd’s (TNB) interest in the power assets owned by 1Malaysia Development Bhd’s (1MDB) energy unit, Edra Global Energy Bhd, is not surprising.
Edra Global has five domestic and eight international power plants with total generation capacity of some 5,500MW.
In July, TNB bought Edra Global’s 70% stake in Project 3B or a 2,000MW coal-fired plant in Jimah, Negri Sembilan, for RM46.98mil, which the market saw as a fair price.
Quelling speculation that TNB is buying Edra’s power assets to bail out cash-strapped 1MDB, president and chief executive officer Datuk Seri Azman Mohd recently reiterated that there was no “external” influence to bid for the power assets. The decision to acquire the assets was purely for commercial reasons, he had said.
Yesterday, in an announcement to Bursa, Azman was more certain that he was keen on Edra. He had said that TNB was the best buyer for Edra’s assets. He also stated that ownership of these assets with TNB would not only ensure continuing Malaysian control of strategic power assets, but would allow the utility to responsibly plan for the future growth of its business and Malaysia’s power needs.
Is that really the case? Edra’s asset forms only 17% of the total generation capacity of the country. Why is it important to TNB’s future planning of the country’s electricity demands?
Hopefully, the foreign parties bidding for Edra Global offer a competitive price for the assets that the 1MDB had acquired with goodwill.
That should come as no surprise. These are cash rich entities which are able to take advantage of the low ringgit value in Malaysia. The asset is also a yielding one as they have existing power purchase agreements, which makes it easy for the buyers to gear up to make this acquisition.
New players in the market would bring about more competition and there are already ways in which to protect the national interest in these power generating assets. Moreover, power generation assets cannot be majority owned by foreigners.
A bidding war, which the investment banks advising Edra of the sale are working on, would be a good price discovery mechanism for Edra Global’s assets.
Apart from TNB, there are two other suitors including foreigners.
If the foreigners are prepared to pay a handsome sum for Edra’s assets in the process, so be it. The power plants cannot be uprooted and taken away.
What is important is that an efficient and transparent price discovery method – such as a competitive bidding process – is used to determine Edra Global’s asset.
HSR: At what cost?
THAT there are reportedly close to 70 interested parties in the multi-billion ringgit high speed rail (HSR) project linking Kuala Lumpur to Singapore shows how much interest the project has attracted – and how much money there is to be made in this job.
Sure, proponents of the HSR are able to show the multiplier effects that this project can bring about. And it could also serve as a means to pump prime the Malaysian economy.
But here are a few reasons why the HSR isn’t a good idea at this point in time.
Firstly, it does not help stem the depreciating ringgit. While it has recovered alongside emerging market currencies lately, its value is still down by about 16% this year – making it the worst performer in the Asia-Pacific region.
Much of the technology and equipment for the HSR will have to be paid in US dollar. So imagine the additional costs for the project if we start it now at this level of the RM4.17 to the US dollar.
Then there’s the overall weak economic scenario.
The price tag for the HSR has been estimated at more than RM40bil. But these are base-case scenario figures and there are likely to be cost overruns.
Intended to deliver a journey time of 90 minutes when travelling non-stop on the 330km line, there will be a transit service serving six stations between the two cities.
When the projet was first mooted in 2006 by YTL Corp Bhd, its cost was estimated at RM8bil. The project was rejected because of its high cost.
If the reason for this mega project is to pump prime the economy, then it should also be accompanied with a discussion on whether its the best time for its implementation.
Aren’t there others way to pump prime the economy?
Furthermore, there are unfinished projects in Malaysia such as the KTM’s Gemas-Johor Baru electrified double-tracking railway project. It also enhances connectivity between Malaysia and Singapore.
Xingquan deal raises eyebrows
Xingquan International Sports Holdings Ltd, a China-based shoemaker listed on Bursa Malaysia has a plan to raise some RM50.7mil from investors via a rights issue to pay for machinery.
But the deal raises eyebrows as the company is already sitting comfortably on a huge cash pile of almost RM886.55mil.
So, why the need to raise more money?
In explaining the rationale for this, Xinquan says that the funds would be used to pay for machinery and that the current cash reserves is to cover its daily operational needs and future acquisition purposes.
According to the announcement, the company’s annual interest income is only 4.62 million yuan based on its cash and cash equivalents of RM886.55mil as of June 30.
Back-of-the-envelope calculations imply a marginal 0.52% interest income from its cash-pile, suggesting that current returns on investments are minimal and the cash is not being put to good use.
So, is it a wise move to raise and invest more funds into machinery when returns just don’t seem to be there for the company?
Maybe the company should make its current cash pile work harder first before getting more funds to invest into the business.
The rights has an undertaking from the major shareholder. Whether other shareholders would subscribe to it remains to be seen.
In the case of TH Heavy Engineering Bhd (TH Heavy) a marine and heavy engineering services provider, its recent rights issue received lukewarm reception from investors. TH Heavy’s parent company Lembaga Tabung Haji was the sole subscriber of the rights issue exercise that had been under-subscribed at 69.96% by other investors in the company.
However, this was not entirely a surprise as oil prices have halved from where it was a year ago resulting in TH Heavy making a loss last year.
Short Position
Edra should go to highest bidder
TENAGA Nasional Bhd’s (TNB) interest in the power assets owned by 1Malaysia Development Bhd’s (1MDB) energy unit, Edra Global Energy Bhd, is not surprising.
Edra Global has five domestic and eight international power plants with total generation capacity of some 5,500MW.
In July, TNB bought Edra Global’s 70% stake in Project 3B or a 2,000MW coal-fired plant in Jimah, Negri Sembilan, for RM46.98mil, which the market saw as a fair price.
Quelling speculation that TNB is buying Edra’s power assets to bail out cash-strapped 1MDB, president and chief executive officer Datuk Seri Azman Mohd recently reiterated that there was no “external” influence to bid for the power assets. The decision to acquire the assets was purely for commercial reasons, he had said.
Yesterday, in an announcement to Bursa, Azman was more certain that he was keen on Edra. He had said that TNB was the best buyer for Edra’s assets. He also stated that ownership of these assets with TNB would not only ensure continuing Malaysian control of strategic power assets, but would allow the utility to responsibly plan for the future growth of its business and Malaysia’s power needs.
Is that really the case? Edra’s asset forms only 17% of the total generation capacity of the country. Why is it important to TNB’s future planning of the country’s electricity demands?
Hopefully, the foreign parties bidding for Edra Global offer a competitive price for the assets that the 1MDB had acquired with goodwill.
That should come as no surprise. These are cash rich entities which are able to take advantage of the low ringgit value in Malaysia. The asset is also a yielding one as they have existing power purchase agreements, which makes it easy for the buyers to gear up to make this acquisition.
New players in the market would bring about more competition and there are already ways in which to protect the national interest in these power generating assets. Moreover, power generation assets cannot be majority owned by foreigners.
A bidding war, which the investment banks advising Edra of the sale are working on, would be a good price discovery mechanism for Edra Global’s assets.
Apart from TNB, there are two other suitors including foreigners.
If the foreigners are prepared to pay a handsome sum for Edra’s assets in the process, so be it. The power plants cannot be uprooted and taken away.
What is important is that an efficient and transparent price discovery method – such as a competitive bidding process – is used to determine Edra Global’s asset.
HSR: At what cost?
THAT there are reportedly close to 70 interested parties in the multi-billion ringgit high speed rail (HSR) project linking Kuala Lumpur to Singapore shows how much interest the project has attracted – and how much money there is to be made in this job.
Sure, proponents of the HSR are able to show the multiplier effects that this project can bring about. And it could also serve as a means to pump prime the Malaysian economy.
But here are a few reasons why the HSR isn’t a good idea at this point in time.
Firstly, it does not help stem the depreciating ringgit. While it has recovered alongside emerging market currencies lately, its value is still down by about 16% this year – making it the worst performer in the Asia-Pacific region.
Much of the technology and equipment for the HSR will have to be paid in US dollar. So imagine the additional costs for the project if we start it now at this level of the RM4.17 to the US dollar.
Then there’s the overall weak economic scenario.
The price tag for the HSR has been estimated at more than RM40bil. But these are base-case scenario figures and there are likely to be cost overruns.
Intended to deliver a journey time of 90 minutes when travelling non-stop on the 330km line, there will be a transit service serving six stations between the two cities.
When the projet was first mooted in 2006 by YTL Corp Bhd, its cost was estimated at RM8bil. The project was rejected because of its high cost.
If the reason for this mega project is to pump prime the economy, then it should also be accompanied with a discussion on whether its the best time for its implementation.
Aren’t there others way to pump prime the economy?
Furthermore, there are unfinished projects in Malaysia such as the KTM’s Gemas-Johor Baru electrified double-tracking railway project. It also enhances connectivity between Malaysia and Singapore.
Xingquan deal raises eyebrows
Xingquan International Sports Holdings Ltd, a China-based shoemaker listed on Bursa Malaysia has a plan to raise some RM50.7mil from investors via a rights issue to pay for machinery.
But the deal raises eyebrows as the company is already sitting comfortably on a huge cash pile of almost RM886.55mil.
So, why the need to raise more money?
In explaining the rationale for this, Xinquan says that the funds would be used to pay for machinery and that the current cash reserves is to cover its daily operational needs and future acquisition purposes.
According to the announcement, the company’s annual interest income is only 4.62 million yuan based on its cash and cash equivalents of RM886.55mil as of June 30.
Back-of-the-envelope calculations imply a marginal 0.52% interest income from its cash-pile, suggesting that current returns on investments are minimal and the cash is not being put to good use.
So, is it a wise move to raise and invest more funds into machinery when returns just don’t seem to be there for the company?
Maybe the company should make its current cash pile work harder first before getting more funds to invest into the business.
The rights has an undertaking from the major shareholder. Whether other shareholders would subscribe to it remains to be seen.
In the case of TH Heavy Engineering Bhd (TH Heavy) a marine and heavy engineering services provider, its recent rights issue received lukewarm reception from investors. TH Heavy’s parent company Lembaga Tabung Haji was the sole subscriber of the rights issue exercise that had been under-subscribed at 69.96% by other investors in the company.
However, this was not entirely a surprise as oil prices have halved from where it was a year ago resulting in TH Heavy making a loss last year.
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