1MDB Energy IPO could value firm at RM11 bil

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1MALAYSIA DEVELOPMENT BHD (1MDB) intends to float its power assets at an indicative price of RM1.83 a share, which will value the entire company — 1MDB Energy Group Bhd — at RM11.0 billion.

At RM1.83 a share, 1MDB Energy Group will be priced at a price-earnings ratio of 20 times FY2016 earnings, which is higher than the current industry range of between 9.0 and 15 times, according to documents prepared for the listing sighted by The Edge.

Tenaga Nasional Bhd currently trades at a PER of 13 times while YTL Power International Ltd is trading at around 11 times.

At 20 times PER, shareholders of 1MDB Energy Group can expect to enjoy a yield of between 2.5% and 3.5%, according to the documents. By comparison, at their current prices, Tenaga has a yield of 2.0% and YTL Power 6.5%.

According to the documents, 1MDB will end up with only a 20% stake in the listed company, which owns all the power companies it had acquired over the last three years for around RM12 billion.

Sources say the valuation and offer price are indicative numbers and are subject to how well the market receives the share offer.  

Interestingly, Tan Sri Syed Mokhtar Albukhary’s MMC Corp Bhd has just revealed plans to relist its energy unit Malakoff Corp Bhd in the second quarter of next year, giving investors another option in the power sector.

Malakoff plans to offer a massive 1.52 billion shares or 30.4% of its enlarged capital for sale. Of the amount, 521 million shares will come from MMC while the remaining will be new shares issued by Malakoff. MMC did not reveal the pricing but previous reports have said the company hopes to raise US$1.0 billion (RM3.35 billion) from the listing.

As for the 1MDB Energy Group IPO, once approved by the Securities Commission Malaysia, the listing is slated for late February or early March.

1MDB will make an offer for sale of 1.812 billion shares it owns in 1MDB Energy Group at RM1.83 a share, thus raising RM3.315 billion for itself.

1MDB Energy Group will also issue 3.002 billion new shares at RM1.83 a share, which will raise RM5.493 billion for the company.

Combined, the total number of shares that will be available for sale will be a whopping 4.814 billion or a total value of RM8.8 billion assuming an IPO price of RM1.83 a share. According to the documents, the shares will be allotted in the following portions — institutional investors (48%), investors determined by the Ministry of International Trade and Industry (24%) and retail investors (8.0%).

The marketing exercise will include approaching targeted cornerstone and anchor investors as well as a book building. Given the massive size of the offer, each cornerstone investor will be asked to take a minimum of US$100 million (RM335 million) while anchor investors are expected to invest at least US$50 million (RM167.5 million).

Maybank Investment Bank Bhd and AmInvestment Bank Bhd are the joint principal advisers and joint managing underwriters. The joint global coordinators and book-runners are Deutsche Bank and Maybank.

Around 75 local and foreign institutional investors will be approached.

Some of the international names targeted are Temasek, BlackRock, Invesco, Aberdeen, Mubadala, Saudi Arabia Monetary Agency, Schroders and T. Rowe Price. Local institutions and funds that will be invited include the Employees Provident Fund, Kumpulan Wang Amanah Pencen, Lembaga Urusan Tabung Haji, Permodalan Nasional Bhd, CIMB-Principal, Hwang Investments, Public Mutual, Eastspring and Great Eastern.

Several prominent local businessmen who are known to have an appetite for being cornerstone investors for IPOs will also be offered shares, sources say.

Given the magnitude of the offer, a price stabilisation scheme will also be put in place whereby the underwriters will stabilise and support the share price should it fall below the IPO price in the immediate period after listing — typically 30 days.

1MDB has amassed liabilities of RM48.97 billion in five years. Although it will get an estimated RM3.315 billion from the offer for sale of its shares in 1MDB Energy Group, it will not be able to retain them as, according to the documents, all the money will be utilised in the following ways:

1) RM2.0 billion will be used as additional equity injection into 1MDB Energy Group;

2) RM950 million will be injected into 1MDB Energy Group in return for shares to settle loans owed to AmBank Bhd, AmInvestment Bank and Affin Investment Bank Bhd; and

3) RM433 million will be used to settle the warrants that were granted to Tanjung Plc, which would have given the company a 14.8% stake in 1MDB Energy Group.

On the part of 1MDB Energy Group, the RM5.493 billion it will raise through the issue of new shares will be used for the following:

1) RM3.0 billion to RM3.5 billion to pay debt;

2) RM1.845 billion to RM2.345 billion for business expansion; and

3) RM155 million for IPO fees and expenses.

The non-executive chairman of 1MDB Energy Group is Tan Sri Ismee Ismail, who is also a director of 1MDB and managing director of Lembaga Urusan Tabung Haji.

Other non-executive directors are Datuk Mohammed Azhar Osman Khairuddin, Datuk Jamelah Jamaluddin, Datuk Vaseehar Hassan Abdul Razak, Datuk Johar Che Mat, Johan Abdullah and Mohd Adzahar Abdul Wahid.

Also on the board are 1MDB CEO Mohd Hazem Abdul Rahman and Datuk Mark Ling, who is 1MDB Energy Group’s president/executive director.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.