Khazanah says made healthy profit with Malaysian Shoaiba stake sale

Malaysia’s $33-billion sovereign wealth fund Khazanah Nasional Bhd on Monday said it made a “healthy profit” by selling its 40 per cent stake in Desaru Investments Limited (DIL) to power and water producer Malakoff Corp Bhd.

The fund said it decided to exit its investment in the company since its commercial objectives had been met.

On Friday, Malakoff announced it is acquiring Khazanah’s entire stake in DIL, which, in turn, owns 40 per cent of Malaysian Shoaiba Consortium Sdn Bhd, which owns stakes in power and water plants in Saudi Arabia, for a cash consideration of $70 million.

Malakoff, via Malakoff Gulf, also owns a 40 per cent stake in the consortium, while Tenaga Nasional Bhd holds the remaining 20 per cent.

Khazanah said its 40 per cent stake in the DIL was offered to existing partners in accordance with the consortium’s shareholders agreement. Malakoff subsequently took the offer, allowing the fund to exit at a value based on future cash flows of the project.

“Assets may be considered for divestment once the intended investment objectives and targeted returns have been achieved, as is the case with the divestment of our stake in the consortium. Divestments may also depend on the strength of the market, as well as the availability, quality and credibility of buyers,” it said.

Khazanah said the proceeds from the divestment will be reinvested based on the objectives of its commercial and strategic funds or to repay the existing debt on its balance sheet.

For the year to date, Khazanah has commitment investments amounting to about 1.4 billion ringgit ($340 million) and reduced overall debt by about 6.4 billion ($1.56 billion), in line with its corporate strategies.

“We further expect to undertake more investments in the second half of 2019, based on the opportunities that we are exploring,” it said.

Malakoff plans to fund the all-cash deal using internally-generated funds. It said the proposed acquisition will increase and consolidate its total effective generation capacity for power and water to 6,708 megawatt (MW) and 544,375 cubic metres per day, respectively.

“This will provide immediate earnings accretion to the company as well as [an] increase in cash flows, derived from the remaining contract periods of approximately 10 years under both Shuaibah Water & Electricity Co Ltd’s (SWEC) power and water purchase agreement for Shuaibah 3 independent water and power plant, and Shuaibah Expansion Project Company’s (SEPCO) water purchase agreement for Shuaibah 3 expansion independent water plant,” said Malakoff CEO Ahmad Fuaad Kenali.

Commissioned in January 2010, the Shuaibah 3 independent water and power plant is the first and largest of its kind in Saudi Arabia. The Shuaibah 3 expansion, meanwhile, was commissioned in 2009.

The Shoaiba consortium has a 50 per cent equity interest in Saudi-Malaysia Water & Electricity Co Ltd (SAMAWEC), which in turns owns a 60 per cent stake in SWEC, and 60 per cent in Shuaibah Expansion Holding Company (SEHCO) which owns a 97.5 per cent stake in SEPCO.