Khazanah returns with $255m Tenaga stake sale

Malaysia’s state-owned fund continues to offload stakes in non-core businesses as it tries to recover the huge losses it incurred last year.

Malaysia’s sovereign wealth fund Khazanah Nasional sold M$1.05 billion ($255 million) of shares in Tenaga Nasional through a discounted block trade on Wednesday. This marks its sixth stake sale in the local power distributor over the last eight years.

The share sale might not be a standout deal regionally but it is important in the context of Malaysia’s capital markets. There has been a prolonged drought of both primary and secondary market transactions for international investors over the last few years, with most deals distributed among local institutional investors.

The lack of international investor participation in Malaysia’s equity capital market stands in sharp contrast to other regional markets such as Vietnam and Thailand. They have seen an increase in foreign capital inflows in the form of ECM deals including IPOs and share placements.

Khazanah is tasked with promoting Malaysia’s capital markets and maintaining Malaysia’s deal flow, but the sovereign fund has had a tough time diversifying its share sale targets in the public market.

That is best shown by the fact that Khazanah has sold stakes publicly in only two domestic companies – CIMB and Tenaga – in recent years.

Khazanah is confined to selling stakes in these two companies because they are among the handful of companies within the state fund’s portfolio with good liquidity and an international profile.

Private hospital group IHH Healthcare has been on Khazanah’s list of disposals in recent years. Any public deal is unlikely in the near future, however, after it sold a 16% stake to Japan’s Mitsui & Co for $2 billion last year that trimmed its own stake to 26%.

Meanwhile, Khazanah has been struggling with the sale of a stake in telecommunications giant Axiata Group thanks to its weak business profile. The company reported a massive $1.2 billion loss last year – the first full-year loss since its 2008 initial public offering – after struggling with its new venture into the Indian cellular market. Khazanah has a 37% in the $9.1 billion market cap company.

It is a similar story with Telekom Malaysia. A hefty $2.5 billion has been cut from its market valuation since the middle of last year after the new government, led by prime minister Mahathir Mohamad, announced plans to treat internet access as a basic right for all citizens. That would be partly achieved through lower broadband prices, which has hurt the profitability of telcos including Telekom Malaysia.

In any case, Khazanah’s latest stake sale in Tenaga has confirmed that its strategy towards the power distributor has not changed. It has sold shares every year between 2012 and 2016, raising about $1.5 billion through five transactions, including four aftermarket block deals and a $500 million bond, exchangeable into Tenaga shares, in 2014.

Wednesday’s Reg S/144A deal saw Khazanah trim its stake in Tenaga to 27.3% from 28.8%. The state fund sold 85 million Tenaga shares at M$12.33 each, representing a 2% discount to the stock’s M$12.58 Wednesday close.

They were offered at a price range of M$12.33 to M$12.58, or a 0% to 2% discount, at launch.

CIMB and JP Morgan were joint bookrunners of the share sale.

Khazanah is selling stakes in its portfolio companies as it hopes to recover its massive loss last year. The state fund booked a pre-tax loss of $1.53 billion last year, mainly due to a massive impairment for the loss-making national flag carrier Malaysia Airlines.

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