PETALING JAYA: 1Malaysia Development Bhd’s (1MDB) divestment of its Project 3B to Tenaga Nasional Bhd (TNB), as confirmed by the minister in charge of energy, is only one part of the process to monetise the power assets.
The bigger plan that is taking shape is the possibility of a local company coming in as an investor or strategic partner into Edra Global Energy Bhd.
Towards this end, four firms, including TNB, have expressed interest to acquire Edra and have started looking at the assets.
Besides TNB, the other companies in the fray are YTL Power International Bhd, Malakoff Corp Bhd and CI Holdings Bhd. It is learnt that all four have signed non-disclosure agreements (NDAs) with the advising bank, Maybank Investment Bank Bhd, and are in various stages of discussions, sources said.
It isn’t clear if these parties are looking at making a joint-bid or are in discussions separately from each other.
1MDB is looking at the option of a listing and a trade sale to monetise its investment in Edra.
“The potential investor being targetted are those who can undertake a trade sale without having to depend on a listing to realise their cash. The investor must also be able to withstand any risk related to the market and undertake the trade sale should the environment worsen,” said a source.
The condition 1MDB is seeking is because its listing option is not a certainty due to public perception issues and soft market conditions.
“To make things worse, there is also an investigation into its finances by the Auditor-General and the Public Accounts Committee, which does not bode well for a company seeking a listing,” said the source.
1MDB was supposed to list Edra by the first quarter of this year, but had to withdraw its application due to uncertainties in relation to a 2,000MW coal-fired plant dubbed Project 3B.
However, yesterday, the Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili confirmed that TNB was buying over 1MDB’s 70% in the project, held through Edra for an undisclosed price. Ongkili said the Cabinet has given TNB the go-ahead to take over Project 3B, which was awarded to 1MDB last year but was unable to take off due to its inability to finance the project.
Edra is not short of suitors, but pricing is an issue because 1MDB had paid a premium of RM3.3bil to acquire the power plants.
Companies such as IJM Corp Bhd, Mudajaya Group Bhd, Singapore’s Sembcorp Industries Ltd and Philippine conglomerate San Miguel have also stated their interest in Edra, but only the four firms have signed the NDAs for the sharing of sensitive business information, sources said. Latest reports have it that funds from the Middle East are also keen on Edra. It is learnt that so far, only YTL Power has verbally come up with an indicative valuation range sometime as at end-May.
Edra, which has some 15 power and desalination plants in five countries, has a book value of between RM16bil and RM18bil, bankers said. “But this includes the hefty RM3.3bil goodwill that puts off investors,” said a source.
In the selection of potential buyers for Edra, 1MDB was said to have reached out to several Malaysian and foreign parties who have expertise in the power sector or have expressed intention to expand their portfolios. Another criteria 1MDB looked for is companies with financial means.
“However, only local firms have come back with an interest in pursuing a transaction,” a source said.
According to sources, while TNB was one of the first to be approached about Edra, it had concerns over certain controversies and public perception issues related to 1MDB. To help it advise, the utility giant has appointed Bank of America Merrill Lynch, while on legal matters, US-based Freshfields was roped in. According to sources, TNB has yet to submit its indicative offer for a stake in Edra unlike YTL Power. Advising YTL, meanwhile, is an American-based advisory firm, Evercore.
As for Malakoff, sources said that the company has set up an internal team to evaluate the potential deal.
The surprise name in the game is CI Holdings, which used to be the vehicle of Titiwangsa MP and former KFC Holdings Bhd managing director Datuk Johari Abdul Ghani. The consumer-based company has reportedly been eyeing opportunities in the power sector after selling its prime asset, Permanis Sdn Bhd, in 2011.
It had earlier failed in its bid to build the 1,071MW for the Prai combined-cycle gas turbine power project.
1MDB first announced plans to list the power unit in July 2014, hoping to raise about RM11bil. Part of the proceeds was to have gone to repay debts that have piled up to RM42bil as of March 31, 2014. It was reported that 1MDB has to pay between RM2.4bil and RM2.7bil yearly in loan interests.
StarBiz had earlier reported, quoting sources, that Edra had planned to list at a value that offers an estimated 2016 dividend yield of between 2.5% and 3.5%.
As part of its listing process earlier, Edra was in discussions with several parties, including foreigners, who have shown interest to participate as a cornerstone investor in the initial public offering. But bankers note that foreign parties are not allowed to own a majority stake in the power firm due to a nationality requirement under its power purchase agreement.
Source – The Star 19 June 2015