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Friday, September 5, 2014

I Told You So - Khazanah Nasional "Sells" TNB Shares Again



Folks, I have been saying for a few years now that Khazanah National engages in the Nenek Tua business model. At the end of almost every year Khazanah Nasional Bhd sells blue chip "treasury" shares (shares that were given to them by Ayahanda the Great Dictator Tun Dr Mahathir Mohamed - our fourth Prime Minister, who somehow retired from office and is now a pensioner)  to show a profit and help in their cash flow.

And on the dot, like clockwork, they have done it again. Yesterday I received this comment in my Blog (thank you). 
 
Anonymous said...
As you predicted.....end of the year time for khazanah to sell some TNB shares. Only this time via negative yield sukuk exchangeable with TNB shares. Just a complicated way to sell TNB shares but amounting to the same thing. Jual juga.   Thursday, September 04, 2014 6:52:00 PM 

Here is today's news from The Star :
 
Khazanah issues RM1.59bil Islamic bonds exchangeable into TNB shares

PETALING JAYA: Khazanah Nasional Bhd has issued a US$500mil (RM1.59bil) seven-year sukuk that is exchangeable into Tenaga Nasional Bhd (TNB) shares.

This is the second issuance by the state investment arm in three weeks.

Khazanah sold RM1.5bil Islamic bonds on Aug 16, for a five-year tenure with a 4.14% yield.
 
convertible sukuk priced at -0.05% yield to maturity with a 15% exchange premium that is convertible into TNB shares.

first seven-year put four exchangeable sukuk that Khazanah has priced at a negative yield.

A debt capital market specialist told StarBiz that an exchangeable sukuk that was priced at a negative yield implied that investors valued the option highly and were willing to invest in the paper issued.

“An exchangeable sukuk priced at a negative yield is not common in this market.Investors who subscribe to the exchangeable sukuk will need to have the confidence that there is much more upside potential (for the TNB shares) compared to the downside risk” The super duds said “The issuance of this exchangeable sukuk is in line with Khazanah’s fund-raising strategy and long-term commitment towards a progressive divestment of its investments.”
This is another way of saying they are selling the Family Silver. This time the Jewel in the Crown. Tak lama nanti jual seluaq dalam sekali. Suruh Pak Arab beli. 
 
Folks, ackchually I am so not so crever. Years and years ago we were in business with Khazanah Nasional Bhd. (Check out Northern Utility Resources Sdn Bhd ok). So I knew the Khazanah folks - the earlier batch who did not get their One Eyed Pirate Diploma from the Nenek Tua School of Business.  

So I know how the place used to work and how they do business now.  Someone pointed out to me (years ago) that come end of the year, Khazanah will sell the blue chip shares that Tun Dr Mahathir gave Khazanah when it was set up in 1994. This will generate a profit, create cashflow and make their books look good.  And since then, I have been noticing that come end of year, thats what Khazanah does.
 
Recently I met another Senior executive in the Khazanah camp. He said that once a year, the super dunggu who runs Khazanah will host a 'retreat' for Khazanah CEOs at some five star place. There he will get the McDunggu Con-sultans who have a PhD in Power Point presentations to prepare a fancy slide show where he will extol all his great achievements for the year.  
 
Among which will be the capital gains realised from the appreciation of TNB share prices - the Jewel in the Crown.  The person said some of them would laugh quietly because there is nothing that the super dunggus know about TNB or the power business.  
 
Of course TNB's share price will appreciate. TNB is a monopoly. They are the only power distributor in the country (except for that pesky NUR Sdn Bhd where I was a Director. NUR was and still is a mini power utility. Meaning we generated the power, distributed the power and at the end of the month we collected the bills ourselves - a mini TNB). 

TNB is a natiowide monopoly. As long as people turn on their tvs and their lights at night, TNB will make money.  Apa susah sangat?
 
Khazanah used to own something like 75% of TNB. But with all the annual selling off of the Crown Jewels, their stake in TNB is now below 50%.  A few more years of year end selling and their stake  will get down to zero.  Just wait and see.
 
Fortunately for the super dunggus but unfortunately for us, the Prime Minister and his advisors do not understand much about anything. So when they tell him, 'Boss this year we made fifty five zillion, billion, trillion, frillion dinars in profit' the PM goes 'Whoopee'. Not knowing how they made the money.  The Khazanah boys know this very well - about the PM. 
 
Exchangeable bonds can be (or they are) a backdoor method of selling shares as well. Here is some info:

An exchangeable bond gives the holder the option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary) at some future date and under prescribed conditions. 
 
How it works/Example:

For example, let's consider a Company XYZ bond that is exchangeable into shares of Company ABC at an exchange ratio of 50:1. This means that you could exchange every $1,000 of par value you own of XYZ bonds into 50 shares of ABC stock.

This effectively means you have the option to purchase Company ABC stock for $20 per share ($1,000/50). If ABC shares were trading for $50 per share, you would probably exchange the bond and then sell the shares, pocketing a profit of $30 per share ($50 received per share - $20 paid per share). But if ABC shares were trading for $10 per share, you would have no incentive to convert the bond and would instead simply continue to receive coupon payments.

Exchangeable-bond holders, usually accept lower coupon rates because they have the chance to profit from the underlying stock's increase. Likewise, issuers often give up equity in return for these lower interest rates. 

Why it Matters:

Clearly, one opportunity (or one risk) of investing in exchangeable bonds is that theinvestor is exposed to an underlying stock that may have an entirely different risk and return profile from the issuer.
 
In other words Khazanah "pinjam nama" TNB shares to get a better interest rate lah. The bondholders like it because they get to convert the hutang into TNB shares, which will or should increase in price.  They will convert the bonds into TNB shares. Meaning Khazanah has sold RM1.59 billion worth of TNB shares.

This is the Nenek Tua Business Model that is practised by Khazanah. Tun Dr Mahathir gave them all those blue chip shares, almost 20 years ago.
 
At the next retreat the super dunggus will say they collected RM1.59 billion cash !!

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