Malaysian state investment fund 1MDB is likely to abort plans for a US$3 billion (RM11.29 billion) initial public offering (IPO) of its power unit and focus on an outright sale of its energy assets, three people with direct knowledge of the deal say today.
The gloom surrounding the Malaysian economy may limit appetite for an IPO for Edra Global Energy, which could have been South-East Asia’s fifth biggest, and several foreign firms have expressed interest in a direct purchase of the assets.
“Market sentiment is still weak,” one of the sources said. “It’s much better to sell it off directly, or even better if they split up the assets into two or three chunks and sell it off.”
The sources said there have been no formal talks with any interested party yet.
“The government is likely to invite a few bidders, who they have selected, to bid for the assets sometime in late July,” one of the sources told Reuters .
Philippine conglomerate San Miguel indicated last week it would be interested.
Middle Eastern power firm ACWA Power is also interested, a source at the company said, and it is keen on the Egyptian power assets in particular.
Sources and other media reports have said Malaysian state power group Tenaga Nasional and construction company IJM Corp could also be in the running. Tenaga and IJM were not immediately available for comment.
Singapore’s government-linked Sembcorp Industries told Reuters that 1MDB assets are among many that Sembcorp is looking at as part of its business development plans.
“However, discussions at this stage are very preliminary,” it said in an emailed response.
The power assets could be worth up to RM18 billion, according to the sources.
1MDB, which announced plans to list the power unit in July 2014, is aiming to reduce its debt pile of US$11.6 billion.
It appointed Deutsche Bank and Maybank as joint global coordinators for the IPO. Goldman Sachs was adviser with Maybank and Ambank joint principal advisers.
But the fund, wholly owned by the Finance Ministry, delayed the offering when investors’ appetite for Malaysian assets evaporated from late 2014. It had been expected to launch the Edra IPO in the second half of this year.
1MDB declined comment on whether the IPO could be scrapped and the Finance Ministry did not reply to requests for comment.
The fund has been dogged for years by controversy over its management of funds and the huge borrowings it amassed to purchase power assets. Its debt has been a burden on state finances, weighing on the ringgit and Malaysia’s credit rating.
1MDB has some 15 power and desalination plants in five countries, although many are near the end of their concession agreements.
Its crown jewel is a US$3 billion coal-fired plant called Project 3B that it and Japanese trading firm Mitsui & Co won the rights to build last year, though 1MDB’s liquidity problems have put its ability to build the plant in question.