(Aug. 16): 1Malaysia Development Bhd., a state investment fund chaired by Prime Minister Najib Razak, obtained a six-month extension on a 6.17 billion ringgit ($1.9 billion) bridge loan, giving it more time to sell shares in its power business to repay debt, people familiar with the matter said.

The sovereign wealth fund, known as 1MDB, now has until May to repay Maybank Investment Bank Bhd., said two people, asking not be be named because the information is private. Kuala Lumpur-based 1MDB may raise as much as $2 billion from the initial public offering of its energy assets, the people said.

1MDB, which bought $3.7 billion of power assets in two years, has total bonds and loans outstanding of 31.2 billion ringgit, according to data compiled by Bloomberg. The latest annual report shows it had 7.8 billion ringgit of debt at the end of March 2012. The fund came under scrutiny in parliament last month after hiring Goldman Sachs Inc. to help manage $6.5 billion of note sales to finance expansion. The bank made about $500 million in commissions and trading gains, a person familiar with the matter said May 9.

“There’s lot of question marks over 1MDB,” Chua Hak Bin, a Singapore-based economist at Bank of America Corp., said in an Aug. 15 interview. “It’s not clear why the government is in the business of flipping its assets.”

Malaysia’s Najib is the chairman of 1MDB’s advisory board.

“1MDB has a policy to not comment on market speculation,” Shahriza Embi, senior vice president of corporate communications, said in an e-mail today. Maybank also declined to comment in an e-mailed response.

Debt Ceiling

Fitch Ratings Ltd. cut its outlook for Malaysia’s credit rating to negative in July, citing weakening state finances. Public debt climbed to 53.8 percent of gross domestic product at the end of the first quarter and will probably test the nation’s self-imposed ceiling of 55 percent by year-end, Bank of America’s Chua said in a report last month.

Quasi-government debt, including government guarantees, reached 147.8 billion ringgit, or 69.4 percent, at the end of the first quarter, Chua said.

“1MDB’s debt level has significance when the government’s own debt ceiling is about to be breached,” Rafizi Ramli, an opposition member of parliament and strategist for Anwar Ibrahim’s People’s Justice Party. said by phone on Aug. 14.

Maybank’s $1.9 billion loan ranks among the top 20 deals by volume in the Asia-Pacific region excluding Japan this year, Bloomberg data show. State-controlled Maybank tops league tables this year as Malaysia’s largest arranger of syndicated debt, the first time it’s held that position in data going back to 2002.

Billionaire Competition

1MDB has started preliminary talks with bankers on the IPO and has yet to request formal proposals, two of the people said. The fund may need to buy more profitable power concessions to be able to offer shares equivalent to or higher than it paid for the assets, they said. 1MDB paid 8.5 times earnings before interest, taxes, depreciation and amortization for energy assets from billionaire T. Ananda Krishnan and Genting Bhd. last year.

Selling shares in the power business in 2014 may mean 1MDB will compete with billionaire Syed Mokhtar Al-Bukhary’s Malakoff Bhd., which plans to sell $1 billion of stock on Kuala Lumpur’s bourse, two other people familiar with the deal said. Malaysia’s largest independent electricity producer postponed its IPO from this year, parent MMC Corp. said in a May 10 exchange filing.

At $2 billion, 1MDB’s IPO would be Kuala Lumpur’s fourth- biggest to date and the largest since palm-oil producer Felda Global Ventures Bhd. raised $3.3 billion last year.

Goldman Fees

The fund purchased Krishnan’s international power generation business in 2012 for 8.5 billion ringgit and bought Genting’s domestic energy operations for 2.3 billion ringgit. Last month, it agreed to pay 1.2 billion ringgit for an effective 75 percent stake in a Malaysian coal-fired plant.

Goldman Sachs’ fees and profits to manage the three bond sales was about as much as Malaysia pays each month on its debt. Southeast Asia’s third-largest economy had 502 billion ringgit of outstanding borrowings at the end of 2012 and debt servicing charges last year were 19.5 billion ringgit, or about $496 million a month, according to data published on the central bank’s website.

Second Finance Minister Ahmad Husni Mohamad Hanadzlah defended the appointment of Goldman Sachs in parliament last month. The sales included a $3 billion issue in March, for which the bank was hired without competitive bidding, people familiar with the matter said at the time.

‘Nothing Unusual’

“There’s nothing unusual about the relationship with Goldman Sachs,” Ahmad Husni said. “Issuers don’t have open tenders when they want to sell bonds. They normally hold discussions with bankers that they’re used to. In this case, Goldman Sachs agreed, and it was given to them.”

1MDB held talks with several other banks and they weren’t able to handle the sale, the minister said.

Goldman Sachs earlier managed two U.S. currency note offerings for 1MDB totaling $3.5 billion. It was selected for those two sales by Abu Dhabi’s International Petroleum Investment Co., which agreed to guarantee the debt as part of a government-to-government initiative to jointly invest in both countries, Ahmad Husni said.

The fund has its origins in the Terengganu Investment Authority, which was created in 2009 to invest oil royalties from the state of Terengganu. When Najib became prime minister that year, it was renamed 1MDB, became a national entity and its funding source was changed to government-backed debt instead of oil income.