January 30, 2014 / 10:56 AM / 4 years ago

Uncertain prospects for power plant tender cast shadow over 1MDB listing

KUALA LUMPUR, Jan 30 (Reuters) - A power plant tender that sovereign wealth fund 1 Malaysia Development Bhd (1MDB) is keen to win before a $2 billion IPO of its power assets has been delayed after bids came in too close to call, government sources said.

1MDB, chaired by Prime Minister Najib Razak, has begun the process of choosing underwriters for what is likely to be one of Southeast Asia’s largest IPOs of the year.

It 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 bankers and analysts also say the IPO would be more attractive to investors if the fund clinches the rights to build a 2,000 megawatt coal-fired plant worth some $3.6 billion, as some of the plants it owns are near the end of their concessions and new contracts will have to be negotiated.

“1MDB needs to win this tender to increase future cash flows as some of these power plants (it currently owns) are close to expiry,” said Affin Investment Bank analyst Chong Lee Len.

“There needs to be a story of growth for the 1MDB IPO,” she said.

But prospects for IMDB and its partner Mitsui & Co Ltd to win the government tender for the plant, known as Track 3B, are unclear.

Rival YTL Power International, controlled by the wealthy and politically connected Yeoh family, offered a tariff of 25.2 Malaysian sen per kilowatt hour (kWh) for the plant, undercutting 1MDB’s 25.3 kWH bid by the smallest of margins, government officials said. They declined to identified as they were not authorised to speak to the media.

“It is too close,” said one of the officials. “1MDB as the dark horse is putting up a strong fight,” he said.

Malaysia’s energy regulator is more than a week past its self-imposed Jan. 20 deadline for announcing the winner.

1MDB and YTL could not be reached for comment.

Winning the tender would also help the fund shake off much negative publicity.

It has racked up a total of $12 billion in debt, and the fund drew controversy after $6.5 billion worth of debt offerings managed by Goldman Sachs were launched in 2012 and 2013 with few public details, kicking in massive fees for the investment bank, according to IFR, a Thomson Reuters publication.

OVEREAGER

The greenfield power plant is expected to come online in 2018 and run for 25 years.

By comparison, a Reuters examination of 1MDB’s energy assets showed three out of its five power plants in Malaysia are about two years from the end of their more than 20-year power purchasing agreements with state utility firm Tenaga Nasional .

One power plant in Bangladesh will see its 15-year concession expire this year while two other power plants in the South Asian country are more than halfway through their power purchasing agreements due to end around 2023.

In Egypt, all three of 1MDB’s power plants are also more than halfway through their more than 20-year concessions. In Pakistan, 1MDB’s sole power plant finishes its concession in 2029. There is no available data for its power plants in Sri Lanka and the United Arab Emirates.

“1MDB was overeager,” said a senior banker who has submitted a pitch for the 1MDB IPO. He declined to be identified as he is not authorised to speak to the media.

“It snapped up power plants, many of which were 9-10 years old at the time and there was no guarantee that the concessions would be extended whether in Malaysia or overseas. So now, they are desperate to win this tender.” ($1 = 3.3472 Malaysian ringgit) (Additional reporting by Yantoultra Ngui in KUALA LUMPUR and Saeed Azhar in SINGAPORE; Editing by Stuart Grudgings, Michael Flaherty and Edwina Gibbs)

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