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1MDB said to near US$2.3 billion power sale to China-led group

1Malaysia Development Bhd is nearing an agreement to sell control of its power business to a Chinese-led bidding group, part of the state investment company's plan to wind down its operations, people with knowledge of the matter said.

[SINGAPORE] 1Malaysia Development Bhd is nearing an agreement to sell control of its power business to a Chinese-led bidding group, part of the state investment company's plan to wind down its operations, people with knowledge of the matter said.

An agreement with the consortium, which includes China General Nuclear Power Corp and Qatar's Nebras Power QSC, may be announced as soon as this weekend, the people said. The deal could value 1MDB's Edra Global Energy Bhd. unit at about 10 billion ringgit (S$3.3 billion), trumping a rival offer from Malaysian energy producer Tenaga Nasional Bhd, the people said, asking not to be identified as the information is private. 

The Malaysian ringgit has dropped about 18 per cent this year, turning it into the worst-performing currency in Asia and making it cheaper for foreign bidders to buy the 1MDB power plants. Tenaga, a Kuala Lumpur-listed utility controlled by the nation's sovereign fund, is wary of overpaying because it needs to justify any acquisition to shareholders, people with knowledge of the matter said earlier this month.

"This deal would be very significant towards improving the sentiments towards Malaysia," Danny Wong Teck Meng, chief executive officer of Kuala Lumpur-based Areca Capital Sdn, which manages about US$224 million in assets, said by phone Friday. "If this deal gets finalised by the year-end, it will remove one big problem clouding the country."

The deal would be conditional on the China General Nuclear consortium being able to obtain at least 50 per cent of the business, according to one of the people. An agreement hasn't been signed yet and talks could still fall apart, the people said.

China General Nuclear said in an e-mailed statement it doesn't have anything to disclose at the moment, while a spokeswoman for Tenaga declined to comment. Nebras didn't answer e-mails and phone calls seeking comment outside of regular business hours, while calls to its controlling shareholder Qatar Electricity & Water Co also went unanswered.

"As negotiations are ongoing, it is not appropriate for 1MDB to comment on this matter," the state investment company said in an e-mailed statement.

"A formal announcement will be made at the appropriate time."

Chinese Premier Li Keqiang left for Kuala Lumpur on Friday, part of an official visit that runs until Nov 23, the official Xinhua News Agency reported earlier in the day. While in Malaysia, he will attend a meeting with leaders from the Association of Southeast Asian Nations, or Asean.

"The deal fits well with China General Nuclear's strategy to expand operations into overseas markets," Simon Powell, head of Asian utilities research at UBS Group AG, said by phone Friday.

"There is a serious slowdown in China's power market."

China General Nuclear would join coal producer China Shenhua Energy Co, which is also a major power generator, in seeking electricity deals in Southeast Asia. Shenhua said Friday a consortium it's leading ranked first on a shortlist of preferred bidders for the development of a coal-fired project in Indonesia.

The Shenhua-led group, which also includes Indonesian coal producer PT Lion Power Energy, is negotiating with Indonesia's state-owned utility company on an agreement of its intention to develop the project, it said in a Hong Kong exchange filing Friday. The plant, which will require about approximately 4.88 billion yuan (S$1.08 billion) of investment, could include a 30-year power purchase agreement, according to the filing.

Foreign investors are normally only allowed to own as much as 49 per cent of Malaysian power producers unless they obtain a waiver, as the government provides gas to electricity plants at subsidized prices.

1MDB, which almost defaulted earlier this year, expects 16 billion ringgit to 18 billion ringgit for the power plants and has received bids close to that figure, company president Arul Kanda said Oct 31. The sale is part of 1MDB's plan to dismantle its operations after it drew criticism from lawmakers for increasing debts that totaled 41.9 billion ringgit as of March 2014.

1MDB owns a net generation capacity of 5,594 megawatts and is the largest independent power producer in Bangladesh and Egypt, according to its website. Besides investments in plants in Pakistan and the United Arab Emirates, it has 3,112 megawatts of capacity in Malaysia, making it the nation's biggest independent power producer after Malakoff Corp.