* 1MDB wins tender for $3.6 bln coal-fired power plant
* At least 6 banks invited to pitch for the IPO -sources
* 1MDB has faced criticism over lack of transparency
* It has also delayed financial accounts, changed auditors
By Yantoultra Ngui and Saeed Azhar
KUALA LUMPUR/SINGAPORE, Feb 28 A planned $2
billion IPO of Malaysia Development Bhd's (1MDB) power assets
got a major boost on Friday after the sovereign wealth fund won
a closely contested government tender to build a power plant.
The news came as sources said that 1MDB, which is chaired by
Prime Minister Najib Razak, had shortlisted at least six
investment banks to make final presentations for the initial
public offering - seen as the biggest in Southeast Asia this
Winning the auction for the $3.6 billion 2,000 megawatt
coal-fired plant, known as track 3B, should help 1MDB alleviate
concerns that its current portfolio of utilities is old and make
the case that its power business should be considered a growth
It also comes at a time when the fund has been dogged by
negative publicity over massive fees paid for bond sales, delays
in publishing its financial accounts, a transfer of funds to the
Cayman Islands and most recently, changing auditors.
"Definitely winning the project 3B will allow them to
increase their net present value, and enterprise value will go
up, allowing them to have better valuations," said Jeremy Goh,
an analyst at Kuala Lumpur-based Alliance Research.
"Their power plants are old power plants...and these old
power plants are not exciting especially when you're going for
A decision on the winning bidder had been delayed after bids
from 1MDB and YTL Power International came in too
close to call. State firm Tenaga Nasional and Malakoff
Corp Bhd - a unit of MMC Corp had also been in the
In its IPO, 1MDB is expected to bundle 15 power plants it
bought over a two-year shopping spree in a bid to a capitalise
on growing electricity demand in Malaysia, the Middle East and
South Asia, financial sources say.
But a Reuters examination of 1MDB's energy assets showed
that many of its power plants are either near the end or more
than halfway through their concessions.
In contrast, the greenfield power plant is expected to come
online in 2018 and run for 25 years. 1MDB will build the plant
with partner Mitsui & Co Ltd.
The sovereign wealth fund has invited banks including CIMB
, Deutsche Bank, Goldman Sachs,
Maybank, Morgan Stanley and UBS to
make their underwriting pitches, people familiar with the matter
said. The so-called beauty parade is slated for early March.
"After the beauty parade, there will be pressure to get this
IPO done before the mid-year ends," a person with direct
knowledge of the matter said.
1MDB officials were not immediately available for comment on
the IPO process. Representatives for the banks declined to
The list of banks has been whittled down after a dozen banks
made proposals in the initial stage of the process in January,
the people said.
CHANGE OF AUDITORS
Key criticisms levelled at the fund include massive fees
paid to Goldman Sachs for managing bond offerings,
according to Thomson Reuters publication IFR.
Defending its most criticised bond placement, 1MBD said it
wanted to ensure a timely completion of a joint venture with Abu
Dhabi's Aabar Investments PJS to pursue energy and real estate
projects in Malaysia and the Middle East.
1MDB's profits to date have been largely due to the
revaluation of land bought cheaply from the federal government,
according to its previous financial results seen by Reuters.
It has also delayed the release of annual accounts for the
financial year ending March 2013 and on Feb. 21 announced it was
replacing its long-standing auditor KPMG with Deloitte.
"This is nothing special or new as it is in line with best
market practice where companies decide on its current or future
auditors after considering all aspects, including but not
limited to conflict of interests and other consideration," 1MDB
said on its website.
It is due to release those financial results by the end of
In response to criticism about funds transferred to the
Cayman Islands, 1MDB has stressed that its fund is regulated by
the monetary authorities in the Caymans, Switzerland and Hong
Kong and it has invested the proceeds with regulated and
licensed international fund managers.