Corporate: 1MDB seeks up to RM5 bil in funding

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1Malaysia Development Bhd (1MDB) is seeking to secure a RM5 billion bridging loan that will be spread over three years. CEO Shahrol Halmi says 1MDB has invited several banks to submit proposals for a hybrid funding programme.
“The Request for Proposal process involves seven domestically based major banks. 1MDB is seeking innovative, cost effective and practical proposals for a bridging loan facility for RM5 billion in two tranches of RM3 billion and RM2 billion,” he says in an email reply to The Edge.
Shahrol says the bridging loan facility will be linked to a medium-term notes programme of up to RM10 billion under the second phase of its funding proposal.
“The funds are not meant for immediate drawdown. We have not exhausted our earlier funding. This is a preparatory step to enable us to act swiftly once our proposed projects are set to go,” he says.
Shahrol says the fundraising exercise is in relation to a number of investments 1MDB is actively pursuing with its global partners, who are keen to invest in proposed projects with a total potential investment of RM69.35 billion.
This is the second fundraising exercise by 1MDB after the RM5 billion raised last May. Sources say the second fundraising exercise, however, may not carry a government guarantee.
“But it does not really make any difference as 1MDB is a government-backed entity,” says a banker.
The RM5 billion that was raised last year was from the sale of 30-year medium-term notes, which carry interest of 5.75% annually. This translates into an interest payment of about RM287.5 million a year by 1MDB.
1MDB initially started as the Terengganu Investment Authority. Five billion ringgit was raised from government-backed papers and another RM6 billion by securitising receivables of oil royalty due to Terengganu. However, Terengganu withdrew after the RM5 billion worth of debt was raised.
In the past year, 1MDB has entered into a few ventures, including setting up a US$2.5 billion joint-venture investment fund with PetroSaudi International (PSI).
Apart from the tie-up with PSI, the other future projects that 1MDB could possibly take on a JV basis with foreign partners include the development of the old Sungai Besi airport and energy-intensive projects in the Sarawak Corridor of Renewable Energy (Score).
Two months ago, 1MDB tied up with the Qatar Investment Authority to seek opportunities worth billions of ringgit in the energy and real estate sector in the Klang Valley. It is said that this venture is to develop the Sungai Besi land.
In January, 1MDB tied up with power utility giant State Grid Corp of China (SGCC) to pursue projects in Score which it stated would generate US$11 billion in economic value.
SGCC is said to have plans to invest US$6 billion to US$8 billion to set up one of the world’s largest aluminium smelters and three hydroelectric dams in Sarawak through this cooperation with 1MDB. So far, 1MDB has not specified where these hydroelectric dam projects are located.
Considering its interest in projects in Score, sources say 1MDB may be one of the parties keen to participate in the ownership of the Bakun hydroelectric dam.
But Shahrol says the matter remains speculation: “1MDB has a policy not to comment on speculation or market rumours.”
It is learnt that Sarawak Energy Bhd (SEB) is already in advanced negotiation with Sarawak Hidro Sdn Bhd to buy over the hydroelectric dam, but sources say it is unlikely that SEB would get to fully own it.
This is understandable because the Bakun dam project is owned and managed by Sarawak Hidro, which in turn is a unit of the federal government.
1MDB, meanwhile, has expressed interest in where the supply of power from Bakun will go to considering that it will no longer be transmitted to the peninsula. This is easy to fathom as its mandate is to bring in investments, and Score is one area it is interested in.
Reports have quoted Shahrol as saying it is game to bring more investors to Sarawak to use the power supply from Bakun in line with its mandate to promote an inflow of foreign direct investments into the country.
Although aluminium smelters were cited as the possible consumers of the power supplied by Bakun, no power purchase agreement has been drawn up yet.
In May, The Edge reported that Sarawak Hidro had agreed in principle to sell power sourced from the power plant to SEB for less than 10 sen per kwh. Although the construction of the 2,400mw-Bakun dam was initially budgeted for RM7 billion, the ultimate cost could be RM1 billion higher due to cost overruns.
Considering the rising costs, an industry source says it may be a tricky task for Sarawak Hidro to achieve an 11% to 13% utility rate of return, which is in line with international benchmarks, for its investment in Bakun.

This article appeared in Corporate page of The Edge Malaysia, Issue 816, July 26-Aug 1, 2010