1MDB may scrap energy IPO, opt for direct sale instead

Singapore

TROUBLED 1Malaysia Development Bhd may call off the much bandied about and long-delayed initial public offering (IPO) of its energy assets and, instead, divest the entire portfolio of 16 power and desalination plants to tackle its hefty debt woes.

The Business Times understands that the stock offering of Edra Global Energy, 1MDB's energy arm, may not happen on concerns that it may not be well received by investors considering the controversy that has dogged its parent 1MDB.

"Forget about the IPO. It's not going to happen as sentiments are weak. 1MDB will look for an investor to sell the entire block of assets," said a highly-placed source.

Edra's listing, a plan that was estimated to raise up to US$3 billion, was earlier viewed as an urgent plan to raise funds and partly alleviate 1MDB's debt headache which stands at some RM42 billion (S$15.7 billion).

Of this, the energy subsidiary is understood to have borrowings of some RM15 billion as at end-March 2014, most of which are ringgit denominated while some RM2 billion are in US dollars.

It is understood that a direct disposal of its power assets is deemed a swifter solution to overcome its debt dilemma, particularly in the light of 1MDB's recent remarks that it needs to resubmit a revised IPO application to Malaysia's Securities Commission following a strategic review.

Sources said that as part of the divestment plan, 1MDB may have the choice at a later date to participate in the IPO, if and when it eventually takes place under the new owners.

The sale will also include the RM11 billion Project 3B, a coal-fired power project which 1MDB had fought hard to win in a bid last year. BT had earlier reported that 1MDB will walk away from the 2,000 mw project which it tied up with Japan's Mitsui to undertake as it was facing difficulties funding its equity portion. Recently, Malaysia's Energy Commission said the fate of the project - whether 1MDB was in or out - would be known soon.

Even as 1MDB's IPO plan looks uncertain, the relisting of independent power producer Malakoff, a firm controlled by Malaysian tycoon Syed Mokhtar Albukhary which had also faced its fair share of delays due to technical issues at one of its plants, is set to take off in May this year.

Malakoff's IPO is estimated to raise some US$740 million and could work out to be the biggest listing in Malaysia in three years.

Up until this point, the stock offering of 1MDB's power assets was an integral part of the firm's strategic review to divvy up its portfolio comprising properties and power plants and eventually, wind down the firm.

The exercise is led by 1MDB's president Arul Kanda to solve the state-backed firm's weak cash flow and hefty indebtedness which has stirred significant anxiety in Malaysia's business circles, as well as the general public.

As part of the review, 1MDB plans to split its real estate assets - Tun Razak Exchange and Bandar Malaysia - into special purpose vehicles, not unlike what it has done with its energy assets.

The SPVs will come directly under Malaysia's Ministry of Finance, 1MDB's owner, and will be led by the ministry's secretary general, according to sources.

With that, sources say the controversial company which has been dogged by bad news since its inception in 2009 and has turned into a political minefield of late, will eventually be disbanded.