Tenaga Nasional inked a deal today to raise RM1.5 billion in the local market in a bid to cut its foreign debt.

The national power giant has turned to the domestic private debt security market in the last few years for funding needs and has managed to cut its foreign debt exposure from 64 percent in financial year 1998 to the current 52 percent, said chairperson Jamaludin Jarjis.

"It is Tenaga's desire to further reduce our foreign currency debt level to approximately 20 percent in the medium term," Jarjis told reporters.

Tenaga earlier signed an agreement with KAF Discounts Bhd and Citibank Bhd the joint arrangers to issue RM1.5 billion worth of Islamic commercial papers and mid-term notes.

The facility is not intended to be fully drawn upon immediately but will be used when required during the seven-year tenure to part finance Tenaga's capital expenditure relating to generation, transmission and distribution assets and for working capital, the company said.

Foreign exchange losses led to Tenaga's net profit slipping 33 percent year-on-year in the nine months to May to RM1.21 billion.

It has total debts of RM28.13 billion, out of which RM14.76 billion is in foreign currency borrowings comprising 6.2 billion in yen and US$6.8 billion.

Jamaludin said Tenaga would raise future working capital domestically to avoid borrowing from overseas.

But it would maintain its borrowings from the Japan Bank For International Cooperation due to the low interest rates and a 10-year grace period before making its first loan payments, he said.

President and chief executive Pian Sukro said Tenaga's average annual capital expenditure amounted to about five billion ringgit.

For the financial year to August 2003, he said RM1.5 billion of the annual expenditure would be utilised for new projects.

Legal dispute

On a legal dispute with investment bank UBS Warburg over a bond option dispute, Jamaludin said Tenaga was looking at two solutions to resolve the matter, including an out-of-court settlement.

He gave no details.

UBS Warburg in February sued Tenaga Nasional in London over details of a put (sale) option granted to UBS Warburg in 1997 related to a US$500 million bond issue for Tenaga conducted by Union Bank of Switzerland, the predecessor of UBS Warburg.

UBS claimed Tenaga's management unilaterally terminated the option last September after protracted negotiations failed to resolve the clash.

Tenaga says the put option was European-style to be exercised when the 1997 bonds matured but UBS Warburg maintained the options are American-style which could be exercised at any time up to maturity.AFP