Malaysia’s 1MDB plans $3b Feb IPO

1Malaysia Development Bhd’s (1MDB) whopping $3 billion power assets’ initial public offering (IPO) is likely in early 2015.

The state fund is racing to complete its due diligence exercise and is expected to submit draft prospectus that targets February-end 2015 listing. The IPO of 1MDB Energy Bhd, largest ever in the Malaysian market, was initially targeted for the last quarter of this year.

The listing is part of 1MDB’s plan to reduce debt and the company plans to use about 50% to 60% of the money raised from the IPO proceeds for this purpose. One-third of the proceeds will be used for capital expenditure to grow the energy business.

Deutsche Bank AG and Malayan Banking Bhd (Maybank) are the joint global coordinators for this IPO. Appointed advisers include, Maybank, AmBank (M) Bhd and Goldman Sachs Group Inc.

The market capitalisation is estimated to be between MYR 10 billion and MYR 12 billion ($3.02 billion and $3.63 billion). Local daily The Star reported that the potential dividend payout in 2016 is expected to be about 40% of earnings, which translates to a yield of 2.5% to 3.5%.

Industry yields, in this sector, range from 2.3% to 4.3% in Malaysia and 3.6% to 7.7% in Asia.

The daily reported that the 1MDB could be selling 30% of its shareholding in 1MDB Energy in an offer for sale, raising about MYR 3.3bil ($1 billion). Up to 45% of the listing company’s enlarged paid-up capital could be a public issue, raising an estimated MYR 5.5 billion ($1.66 billion).

In 2012, the 1MDB has bought out the \power generation assets of Tanjong plc, Genting Sanyen Sdn Bhd and Jimah Energy Ventures Holdings Sdn Bhd by investing MYR 12 billion. Earlier this year, it had secured a 50 MW solar power plant project and 2,000 MW coal-fired plant, Project 3B, which has a projected internal rate of return (IRR) of 6%. It was also recently awarded a 2,400MW gas-turbine power plant project, which is expected to be commissioned in 2021, with an expected IRR of 10%.

The company is rumoured to be looking at a 780MW hydro plant acquisition, next.
Reuters reported in September that the IPO was still undergoing its due diligence process with negotiations around the restructuring of a MYR 5.5 billion loan.

The state fund had restructured the MYR 5.5 billion bridging loan this May, into two tranches – a MYR 3.5 billion loan due after 123 months and a MYR two billion loan due this month, according to Reuters data. The tranche due this month, however, was likely to be extended for several months or pared down through internal funds to ease debt repayment pressure, Reuters reported.

The bridging loan has been extended twice, originally part of a MYR 6.17 billion loan, the fund took from Maybank Investment Bank in 2012. Maybank International Ltd and RHB Bank are the lead arrangers and book runners of the restructured loan.

1MDB is a government-owned strategic development company with functions as a sovereign wealth fund and private investment vehicle. It has debts exceeding $11 billion.

Addressing market furore

In the run-up to its IPO, 1MDB has also come forth to set the record straight about its operations. This is in response to the market speculation about lack of transparency, which have lead to a general market distrust and criticism.

Last Thursday, the state fund gave a lengthy explanation of its operations via the local media. Among the issues it highlighted, were the workings of its power business.

While some parties have suggested that the consortium won Project 3B due to preferential treatment, 1MDB retorted with its track record as Malaysia’s second largest independent power producer and experienced management team.
“(We) participated in an open and competitive tender exercise for a 2000 MW coal-fired power plant known as Project 3B. Following due consideration of the various bids, the Energy Commission announced that our consortium had been chosen as the preferred bidder,” it clarified.

1MDB added: It is also worth noting that 1MDB was not successful in other tenders we have participated in, namely the gas-fired Prai plant bid and the 1000 MW coal-fired power plant. Both projects went to Tenaga Nasional Bhd.

It said the its joint consortium with Mitsui & Co paid less than MYR 8 million to assemble and submit its bid for Project 3B and not the $100 million alleged.
“This is about half the amount a business daily claimed other bidders spent for this stage,” it said.

The consortium is now in the next development stage – to begin plan operation in 2018.

On its debt levels, 1MDB noted that its total value of assets at MYR 44.67 billion ($13.5 billion) as at the financial year ending March 2013 “comfortably exceeded the value of our total debts at MYR 37 billion ($11.2 billion) for the same period”.
“It is also important to note that we have never missed a payment schedule, nor do we intend to do so. Our consistent ability to raise funds on the international markets, and from quality investors, reflects the confidence they place in us. The listing of our energy business is one of a series of exercises that we intend to carry out to de-leverage our balance sheet,” 1MDB said, as reported by national daily The Star.

The fund also underlined that it was developing real estate business with projects such as TRX and Bandar Malaysia that will add to its total asset value and monetisation potential. “Over the past year, we have entered into a number of agreements with leading companies and institutions from around the world such as international property and infrastructure group Lend Lease.”

The Malaysian government also announced that it will not absorb any debt incurred by 1MDB. Prime minister Najib Razak said only MYR 5.8 billion ($1.75 billion) of 1MDB’s loans were guaranteed by the government. He was quoted by local wire Bernama: “Like other companies governed by the Companies Act, 1MDB has limited liability, and apart from loans or bonds that had government guarantees, 1MDB financial matters are not included in the government’s contingent liabilities. The financial situation of 1MDB rests in the hands of the company.”

The local media has also questioned if the 1MDB has yet to lodge its accounts with the Companies Commission of Malaysia (CCM) or if it was a delay on the CCM’s part to post the accounts on its website.
1MDB, with its financial year ending on March 31, 2014, it had until September to have its books signed and until October to lodge the accounts with CCM.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.