Wednesday, October 12, 2011

Caution ahead for Tenaga on high fuel costs, weak ringgit

KUALA LUMPUR: TENAGA NASIONAL BHD [] may face more downside pressure in the in the absence of a clear-cut resolution of its high fuel costs and a weaker ringgit, which would see it sustaining forex losses, says UOB Kay Hian Malaysia Research.

The research house said on Wednesday, Oct 12 that factoring in additional operating expenses for high fuel costs, Tenaga potentially needed to raise RM500 million to RM1.0 billion in working capital.

UOB Kay Hian Research also said Tenaga's weak performance in the third quarter ended May 31, 2011, where it posted net loss of RM440 million, could also stretch until the first quarter ending-November 2011.

The research house said actual gas supply curtailment in the fourth quarter ended Aug 31, 2011 might just be slightly better than the third quarter ended May 31, instead of significantly better, according to planned curtailment.

It also said the gas supply shortages had forced Tenaga to source for alternative fuels, which cost six times as much to generate electricity as gas inputs.

'As a result, Tenaga suffered a RM440 million net loss in'' the 3Q ended May 31, 2011. An option to resolve this problem is to ensure regular supply of gas by Petronas, which is currently delivered to Tenaga on a 'best effort' basis only, we understand.' it said.

UOB Kay Hian Research said alternatively, Petronas could share Tenaga's burden by absorbing part of Tenaga's additional costs.

It also pointed out that although the ringgit had strengthened mildly (1%) versus the US$ in 4QFY11, it weakened 3.6% from May 31 to Oct 10, 2011.

'With about 15% of its debt or some RM3 billion denominated in US$, Tenaga could be recognising RM100 million in forex losses. Another RM5 billion debt is denominated in yen, which had strengthened 6% vs the ringgit since May 31, which could add RM300 million to the losses. We are not aware that Tenaga hedges its forex exposures,' it said.

No comments:

Post a Comment