Sovereign wealth fund 1Malaysia Development Bhd’s (1MDB) plan to raise some US$3 billion (RM9.6 billion) from the listing of its power generation assets exercise is “quite ambitious” and will help 1MDB to unlock the value of its power assets, says MIDF Amanah Investment Bank Bhd.
Its head of equity research Syed Muhammed Kifni said the listing exercise will allow access to the capital market and may help the group’s quest for more power assets and concessions in view of the nation’s growing power demand.
“The timing is right due to relatively generous prevailing equity market valuation at near all-time high, ample domestic liquidity and investors’ appetite for good listing remains favourable,” he told The Malaysia Reserve.
Syed Muhammad said the listing proceeds would help 1MDB to pare down some of its debt that stands at about RM36.2 billion as at March 2013.
1MDB has won a six-month extension on a US$1.9 billion bridge loan, giving it more time to launch a planned initial public offering (IPO) of its power assets to cut debt, a report by Reuters quoted people familiar with the matter as saying.
The extension is the second six-month extension on the loan for 1MDB whose advisory board is chaired by Prime Minister Datuk Seri Mohd Najib Razak, amounting to RM6.17 billion from Maybank Investment Bank Bhd.
The loan is now due in November, the report quoted the source as saying.
Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said 1MDB’s public offering should be well received by the market attracting local and foreign interest as the stock will likely be a blue chip but valuation wise, the prospectus would be needed to put a value to it.
As it would like be a blue chip the timing of the listing should be now when the market is richly valued. Pong expects 1MDB, which has drawn much flak for its management of its funds, to get a good price on the shares offered.
The 1MDB IPO listing will likely be the country’s biggest for the year, after palm oil giant Felda Global Ventures Holdings Bhd raised a record US$3.25 billion in 2012.
Last week, AFP reported that the state-backed investor had commenced activities to list on Bursa Malaysia in the fourth-quarter of the year, backed by operational assets with healthy cashflows and strong growth potential.
The proceeds from the offering will go towards funding future growth and parts of the company’s outstanding debt.
The listing could see Aabar Investment PJSC emerge as a shareholder as 1MDB has offered Aabar the opportunity to take up a stake in some of 1MDB’s energy assets for guaranteeing its financing.
Should Aabar exercise this options, it will pay 1MDB for its shares according to 1MDB past statements.
Newsreports aslo revealed that telecommunications and media tycoon Tan Sri T Ananda Krishnan-linked Tanjong plc has agreed to subscribe up to RM2 billion worth of equity in Powertek Investment Holdings Sdn Bhd — the power arm of 1MDB.
Some of the money raised will also probably go to fund the construction of RM11 billion coal fired 3B power plant project which 1MDB has clinched.
In a recent press release, the company said all of 1MDB’s debts are backed by the group’s operational assets, with healthy cashflows and strong growth potential beyond their finite life.
The group’s cash assets, meanwhile, are currently being invested in both energy and real estate sectors for investment returns. This will in turn be utilised to cover debt and to return cash to shareholders.
There is sufficient asset cover by 1MDB’s group assets. The group’s total assets stood at RM46 billion at the financial year end of March 2013, compared to total debt of RM37 billion.
This has been detailed in 1MDB’s published annual accounts that are available for public consumption.
The recent restructuring exercise has enabled 1MDB to reduce its RM6.17 billion bridging loan to RM5.5 billion through internally generated funds. The bridging loan was taken up two years ago to finance the acquisitions of Powertek Energy Sdn Bhd from Tanjong.
Now in its fifth year of operations, 1MDB expects to see strong contributions from both its energy and real estate arms, which are expected to yield investment returns higher than their cost of capital.
1MDB owns 16 power and desalination plants in Malaysia, Egypt, Sri Lanka, Bangladesh, Pakistan and the United Arab Emirates.