National utility firm Tenaga Nasional Bhd (TNB) (5347) will not take on any more foreign currency debt, says its top executive.

"In seeking new debts, we will only look at ringgit-denominated loans and not expose ourselves further with foreign (currency) loans," its president and chief executive officer Datuk Seri Che Khalib Mohamad Noh told Business Times in an interview.

The decision is part of TNB's ongoing effort to manage its sizeable debt of RM22 billion.

"TNB's debt was RM32 billion in 2004. So, this is a marked reduction of RM10 billion, which was done through debt repayment and converting some of the foreign (currency) debts to ringgit.

"What we are trying to do right now is refinance some of our foreign debts," Che Khalib said.
However, that is not possible for all as some debts were obtained through government-to-government arrangements and are long-dated financing.

An example is the 30-year loan from the Japan International Cooperation Agency at an interest rate of 0.75 per cent.

"So, while we suffer a translation loss from time to time, it's only paper loss. But if you can average out the interest we pay and the translation loss, it is still a saving," Che Khalib said.

He added that TNB was comfortable with its current gearing of less than 50 per cent.

"We should also balance this with making sure we pay dividends because if we keep paying debts, we will not be able to pay dividends to shareholders."

TNB will definitely require more financing, having obtained government approval alongside Sarawak Energy Bhd to take over the Bakun Hydroelectric Project last month.

It will be involved in the development of the undersea transmission facilities from Sarawak to Peninsular Malaysia.

ECM Libra Capital said in its recent research note that TNB will re-tender for the project to lay the undersea cables, with hopes of securing a better price this time.

TNB, which has posted losses over the last two consecutive quarters, expects to be hit by lower demand and higher foreign exchange losses this year.

While it aims to break even operationally this year, Che Khalib has said that it will be difficult because of the foreign exchange losses.

"We can expect the ringgit to make further losses against the yen and the US dollar due to higher interest payments for foreign currency loans," he said last month when announcing TNB's first-quarter results.

Its foreign exchange losses in the quarter ended November 30 2008 amounted to RM1.4 billion, compared with RM242.4 million a year ago, as the ringgit weakened against the yen and the greenback.