Strategic sale option for 1MDB power assets

fd_19March2015_theedgemarkets

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KUALA LUMPUR: The Ministry of Finance (MoF) has asked CIMB Investment Bank Bhd to look at a strategic sale of the power assets of 1Malaysia Development Bhd (1MDB) as an alternative to the planned initial public offering (IPO), which has run into headwinds because of various problems.

Sources said that MoF, as the sole shareholder of 1MDB, is worried that the IPO, initially planned for late last year and now targeted for mid-2015, may not materialise, and wants to consider another option.

“They are in need of cash to help pay off their debts and they are worried that the IPO may not happen, so they need to consider an alternative,” said a source. 

It is understood that the MoF had asked CIMB to handle the job because it is not involved in the proposed IPO and is also not a lender to 1MDB, and would provide objectivity in handling what is a very delicate matter.

1MDB executives were taken by surprise by the MoF’s decision and, according to one source, are not “exactly pleased” with it. 

To placate 1MDB executives, the MoF has told them that they can proceed with the IPO plan, but that a strategic sale is another option that needs to be considered.

“In the end, MoF will decide whether to do an outright sale or an IPO based on what is doable and the timeline to do it,” said one source. “They need the cash quickly to get some of the debts off their books.”

The MoF recently gave 1MDB a RM950 million standby credit to mitigate its cash flow problem but this will not be enough as its debt servicing a year is over RM2.5 billion.

To recap, 1MDB wanted to float its power assets under Edra Global Energy Bhd late last year to raise cash to retire some of its RM42 billion debt. It had acquired these power assets principally from 

T Ananda Krishnan’s Tanjong plc and Genting Bhd for around RM13 billion in 2012.

Through a series of debt restructurings within the group, Edra Global now has RM15 billion in debt on its books and the cash flow from the power assets is barely enough to service its debts.

According to documents sighted by The Edge weekly, the proposed IPO has targeted an enterprise value of RM19 billion (equity value of RM4 billion and debt of RM15 billion). 

Some bankers have said that the flotation will be challenging given all the problems that 1MDB faces and the controversies that have surfaced in recent months.

Sources said that it is very likely that CIMB will call for a restricted tender in which a few companies will be invited to make an offer to buy Edra Global. 

This would mean either those which are already in the power sector like Tenaga Nasional Bhd, Malakoff Bhd and YTL Power International Bhd or those which have the financial muscle like Petroliam Nasional Bhd or IJM Corp Bhd.

They also did not rule out the possibility that Tanjong may end up buying back the assets it sold to 1MDB.

 

This article first appeared in The Edge Financial Daily, on March 19, 2015.