Tenaga which has large amounts of yen denominated loans, is turning out to be an indirect casualty of Japan ’s massive earthquake. With Japanese currency rallying to record highs in the aftermath of the disaster, It could be sitting on potential forex losses of rm182 million. According to its latest financial statements for the period ended Nov 30, 2010, Tenaga had rm5.26 billion in yen denominated debt, which accounted for a quarter of its total debt of rm21.28 billion.
These forex translations losses, however, will not likely be reflected in Tenaga’s upcoming results for the quarter ended Feb 28 (2Q2011) as most of its 3.5% rally in the yen occurred after the March 11 earthquake.
As of Nov 30, 2010, Tenaga also had debts totaling rm4.5 billion denominated in the US dollar, which has been weakening against the ringgit. Hence, some of the losses from its yen denominated loans will be offset against the forex gains from its greenback debt.
At the end of FY2010, it was estimated that Japanese investors held around US$2 trillion in foreign assets, net of reserves. Since the earthquake, the yen has been surging against currencies, including the US dollar, euro and the ringgit, due to speculation that Japanese insurers and investors will repatriate their overseas assets to pay for damage, claims and reconstruction activities in their homeland.
Going forward, these forex losses may be temporary if the yen reverses its course later. Repatriation may support the yen in the short term, but the longer picture depends on economic fundamentals. The long term of the yen is negative. After the earthquake, we will see higher imports of capital and construction goods and lower exports due to damaged plants and infra. That will narrow Japan ’s current account surplus.
Tenaga has managed to trim its borrowings substantially over the years. Tenaga also not expecting to secure a tariff hike until after the general elections.
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