WHILE it seems 1Malaysia Development Bhd has committed itself to bring some RM7 billion in investments in the Cayman Islands back to Malaysia, it is having trouble settling a RM317.3 million land acquisition from Tadmax Resources Bhd.
1MDB has already requested for two extensions to pay the balance of about RM285 million, not including the 10% deposit, and has now missed the Oct 31 deadline. The state-owned fund was supposed to settle the balance of 90% of the consideration within seven days of Aug 20 when the deal became unconditional.
At the same time, 1MDB may have to find an alternative use for the land, other than building a power plant. It is understood that a previously reported proposal to build a coal-fired power plant with an estimated capacity of 2,000mw on the 310-acre parcel in question in Pulau Indah, Klang, has been shelved.
In fact, sources with knowledge of the matter say the land will not be among the assets injected into 1MDB’s upcoming energy asset listing, 1MDB Energy Group Bhd.
Nonetheless, it is unthinkable for the state-owned fund with over RM51.4 billion in assets to default on such a paltry payment, and sources familiar with the deal expect 1MDB to request yet another extension.
1MDB could not be reached for comment, but its failure to meet the payment deadline comes hot on the heels of the fund’s reported net loss of RM665.3 million for the financial year ended March 31, 2014.
The delay could jeopardise Tadmax’s restructuring plans, which hinges on the cash coming in from the completion of the sale. The RM285 million cash would have been more than enough for the company to pare down its net debts of RM220 million as at June 30.
More importantly, with the cash in hand, Tadmax would be able to finance the planting of oil palm in Papua New Guinea where it has 80,000ha of land — something the company had not been able to undertake given it only has several thousand ringgit in cash as at June 30 against almost RM86.18 million in current bank borrowings.
It is noteworthy that Tadmax last week completed a capitalisation exercise to lower its gearing. The company on Nov 3 issued 72 million shares to director Datuk Faizal Abdullah to settle some RM36 million that he had loaned to the company. As at last Friday’s closing price of 40 sen, Faizal would have only received RM28.8 million worth of shares, which bumped up his stake in the company to 20.17% from 4.78% previously.
Anuar Adam remains the largest shareholder with a 24.97% stake post-exercise. He was also appointed as managing director last month after Mohd Reezal Siddiq resigned, citing “venturing into business” as his reason. Other substantial shareholders include Chen Chee Min with an 8.73% stake and Datuk Seri Tiong King Sing with 4.51%.
However, the capitalisation exercise doesn’t address the company’s need for fresh funds and 1MDB’s slow payment throws a wrench in Tadmax’s proposed 10% private placement, which is supposed to be priced at 50 sen a share and raise RM18.6 million.
The deal cannot proceed while the share price is below 50 sen, although management says it is in talks with several parties.
To recap, 1MDB in February this year signed an agreement to acquire Tadmax Power Sdn Bhd, a wholly-owned subsidiary of Tadmax, for RM317.3 million. Tadmax Power owns the 310-acre parcel that interestingly, had been proposed as a competing site for a coal-fired power plant in the tender for Project 3B that 1MDB eventually won. The transaction values the land at RM24.89 per sq ft.
The land is located adjacent to the scandal-hit Port Klang Free Trade Zone site that Tiong sold to the government in 2002. Back then, Tiong was also a major shareholder in Tadmax, then known as Wijaya Baru Global Bhd, and held more than 33% in the company in 2011.
In the meantime, the fate of Tadmax’s shareholders is now in the hands of 1MDB. The good news is that Tadmax has already collected the 10% deposit. However, the loss-making company still needs the full sum to unlock the value of its plantation assets.
Its debt-laden balance sheet and difficulty in completing the private placement begs the question as to whether Tadmax can afford the time it takes to find another buyer in the event the deal with 1MDB falls though.
This article first appeared in The Edge Malaysia Weekly, on November 10 - 16, 2014.