1MDB nearing RM10b power sale to Chinese-led group


(Bloomberg) – 1Malaysia Development Bhd (1MDB) 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 RM10 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 19 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.

The deal would be conditional on the CGN 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.

Rising debt

A representative for China General Nuclear didn’t immediately respond to an e-mail seeking comment, 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.”

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 RM16 billion to RM18 billion for the power plants and has received bids close to that figure, company president Arul Kanda said October 31. The sale is part of 1MDB’s plan to dismantle its operations after it drew criticism from lawmakers for increasing debts that totalled RM41.9 billion 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.