1MDB buys Genting’s power assets

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KUALA LUMPUR: Just five months after forking out RM8.5 billion for the power assets of the Tanjong group, 1Malaysia Development Bhd (1MDB) has stepped up its spending in the sector by agreeing to pay the Genting group RM2.3 billion for its domestic power plant.
Genting announced yesterday that it had entered into a conditional sale and purchase agreement with 1MDB to dispose of its 97.7% equity interest and non-cumulative redeemable preference shares (NCRPS) in Mastika Lagenda Sdn Bhd, which has a 75% stake in Genting Sanyen Power Sdn Bhd (GSP).
GSP owns and operates a 720mw gas-fired combined cycle plant, which was commissioned in 1995 and has a power purchase agreement (PPA) that expires in February 2016.Genting is also disposing of 3.2 million sq ft of land at the Genting Sanyen Industrial Park, which industry executives felt was probably for future expansion of the power plant, to 1MDB for RM38.8 million.
1MDB is acquiring the remaining 2.3% stake and the rest of the NCRPS instruments in Mastika Lagenda from the head of Genting Energy, Ong Tiong Sou, for RM53.8 million.
In its announcement, Genting said GSP has submitted a competitive bid to the Energy Commission of Malaysia under the Track 2 — Renewal of Existing Power Generation Facility’ process, proposing a 10-year extension to the PPA based on a set of proposed terms. It has yet to get a response from the Energy Commission.
The deal is expected to be completed by Aug 30, subject to 1MDB securing the financing. 1MDB will also settle an inter-company loan of RM208 million owed by Mastika Lagenda to GSP.
If completed, 1MDB’s power generation capacity will increase to 4,635MW, easily making it one of the largest independent power producers (IPP) in the country and rivalling Malakoff Bhd, which is under MMC Corp Bhd.
1MDB’s presence in the power sector was only possible after it acquired Tanjong Bhd’s overseas and local power assets in March this year which immediately gave it fire-power of 3.915MW.
The acquisition that came with a financing of close to RM11 billion, came with the management of Tanjong’s power division.
Established with RM5 billion in seed capital raised from the capital markets with a government guarantee, 1MDB is an initiative of Prime Minister Datuk Seri Najib Razak to spur investments with high impact on the Malaysia economy.
It is the master developer of the RM26 billion Kuala Lumpur International Financial District, which has now been renamed the Tun Razak Exchange. The project is the single largest property development to be launched in Malaysia so far.
Genting is expected to record a one-off net gain of about RM1.9 billion from the proposed disposals, contributing to an increase of about 52 sen to its consolidated earnings per share and net assets per share for the current financial year.
However, following the proposed disposals, the earnings contribution from its power division will be reduced significantly because analysts say that although the group has other power plants such as in China, its most profitable plant is in Malaysia.
Genting stated that its board felt that at this price, the disposal was in the best interest of the company and would enable the group to focus its time and resources on developing its power generation portfolio abroad.
1MDB said in a statement that given its unique private-public sector dynamics, the sovereign wealth fund can create new synergies and catalyse the adoption of innovative green and sustainable technologies.

This article appeared in The Edge Financial Daily, on 14 August 2012.