UPDATE 2-Malaysia fund places Tenaga shrs in bid to boost market

* Khazanah sells 87 mln Tenaga shares at 8.10 rgt/shr-dealers

* Placement part of plan to reduce stake in GLCs-dealers

* Khazanah largest shareholder of Tenaga with 38 pct stake

* Stake sale creates liquidity, positive to market-analysts

(Adds Khazanah, fund manager comments, details)

By Soo Ai Peng

KUALA LUMPUR, Dec 11 (Reuters) - Malaysia's state fund Khazanah placed out two percent of the stock of key power utility Tenaga (TENA.KL) in a move aimed at drawing foreign funds back to its laggard stock market.

The placing follows a call by Prime Minister Najib Razak for state funds to sell down stakes in government-linked firms that dominate the market, to try to boost the free float of a stock exchange that has lagged its Asian peers.

"This is positive in the sense that it creates liquidity and subsequently, new interest in the stocks," said Ang Kok Heng, chief investment officer of Phillip Capital Management in Kuala Lumpur.

Khazanah raised 704.7 million ringgit ($207.5 million) after placing out this week of about 87 million shares in Tenaga, the country's 6th-largest company by market capitalisation, three dealers and one fund manager told Reuters on Friday.

"We should see more such transactions, as this is coming from the government," Ang said.

Khazanah's shares, which account for about 2 percent of Tenaga's total share capital, were sold at 8.10 ringgit a share, said the dealers, who could not be named due to company policy.

"This partial divestment of the stake is in line with Khazanah's aim to increase the free float and liquidity of large GLCs in our portfolios," said Khazanah spokesman Mohd Asuki Abas.

"It is also a continuation of our ongoing program of orderly divestment," he added.

Malaysia's benchmark stock index .KLSE, is among the worst-performing indexes in Asia this year, having risen just 43.7 percent compared with Thailand's index .SETI which has gained 54.4 percent, Indonesia's .JKSE which has risen 83.5 percent and Singapore's benchmark .FTSTI, up 57.9 percent.

As of Aug.31, 2009, Khazanah owned about 1.64 billion shares or 38 percent of Tenaga, according to Tenaga's website (www.tnb.com.my).

Tenaga is the largest power firm in the country, generating more than two-thirds of the country's electricity supply.

By 0402 GMT, Tenaga shares were down 0.12 percent at 8.39 ringgit a share. The stock has gained 34.4 percent so far in 2009, lagging the wider market's .KLSE 43.7 percent rise.

A source with direct knowledge of the share placement said the shares were sold to local institutional funds and the Employees Provident Fund (EPF), the largest pension fund in the country, has taken up 50 million shares in the placement.

The Tenaga placement came hot on the heels of Khazanah's recent sale of some 92 million shares in highway operator PLUS Expressways PLUE.KL. The state fund owns more than half of PLUS.

INVESTORS PAY ATTENTION

With foreign ownership of Malaysian stocks standing at slightly above 20 percent, fund managers and analysts said that the move would draw back foreign funds, who deserted the Malaysian market during the credit crunch.

Prime Minister Najib Razak, who introduced a raft of market liberalisation measures since taking office in April, has asked Khazanah to address the low level of free-float in the local stock market by cutting down its stakes in government-linked firms. [ID:nKLR467124]

Najib also asked for the listing of Malaysia's top mobile provider by market share Maxis (MXSC.KL) which launched its $3.3 billion IPO in a strong market debut. [ID:nKLR425244]

Investors have paid attention, said Phillip Capital's Ang.

"Definitely we have seen interest coming in that foreign investors are now watching Malaysia, compared to previously where they didn't even want to consider Malaysia" he said.

Khazanah, owned by Malaysia's Finance Ministry, controls some of the largest companies on the stock exchange.

It owns more than 50 percent of flag carrier Malaysian Airline System MAMS.KL and Malaysia Airports Holdings (MAHB.KL) It also controls No.2 lender CIMB (CIMB.KL), mobile provider Axiata (AXIA.KL), highway operator PLUS Expressways PLUE.KL and national carmaker Proton PROT.KL.

(Reporting by Soo Ai Peng; Editing by David Chance and Valerie Lee)