Nebras, CGN Tie-Up Said Vying With Tenaga for 1MDB Power Arm

Updated on
  • Foreign consortium seen offering higher price than Tenaga
  • State investment fund to choose preferred bidder this month

Qatar’s Nebras Power QSC is in talks to partner with China General Nuclear Power Corp. in the bidding for 1Malaysia Development Bhd.’s power business, people with knowledge of the matter said, potentially pitting a foreign consortium against Malaysia’s biggest listed energy producer.

The overseas bidders have expressed willingness to pay a higher price for the state investment company’s Edra Global Energy Bhd. unit than Malaysia’s Tenaga Nasional Bhd., the people said, asking not to be identified as the negotiations are private. Tenaga, a Kuala Lumpur-listed utility controlled by the nation’s sovereign fund, is wary of overpaying because it needs to justify any acquisition to shareholders, one person said.

The Malaysian ringgit has fallen about 19 percent this year, turning it into the worst-performing currency in Asia and making it cheaper for foreign bidders to buy the 1MDB power plants. Investor fears are easing that Tenaga will be told to perform “national service” by acquiring assets from 1MDB at an inflated price, said Ang Kok Heng, who helps manage $630 million as chief investment officer at Phillip Capital Management Bhd. in Kuala Lumpur.

“If the deal doesn’t go through, it’s good for Tenaga,” Kaladher Govindan, head of research at TA Securities Holdings Bhd., said by phone. “Even if it goes through, their pricing is at the lower end, so it’s a win-win situation for both parties.”

Tenaga shares jumped 7.6 percent, the most since December 2013, at 12:03 p.m. in Kuala Lumpur. It was the biggest gainer on the benchmark FTSE Bursa Malaysia KLCI Index, which was up 0.5 percent.

Foreign Ownership

1MDB, the debt-ridden state investment company that almost defaulted earlier this year, expects 16 billion ringgit ($3.8 billion) to 18 billion ringgit for the power plants and has received bids close to that figure, company president Arul Kanda said Oct. 31. The sale is part of 1MDB’s plan to wind down its operations after it drew criticism from lawmakers for rising borrowings that totaled 41.9 billion ringgit as of March 2014.

Foreign investors are normally only allowed to own as much as 49 percent of Malaysian power producers unless they obtain a waiver, as the government provides gas to electricity plants at subsidized prices. It’s not yet clear whether foreign bidders for 1MDB’s power plants will be able to obtain an exemption, according to the people.

State-owned China General Nuclear entered the bidding after its Hong Kong-based clean-energy arm, CGN Meiya Power Holdings Co., decided not to pursue an offer, according to the people. A preferred bidder is expected to be chosen this month, two of the people said. 

Deal Certainty

1MDB, whose advisory board is headed by Prime Minister Najib Razak, has said it expects to enter into a definitive agreement with the winning bidder before the year-end. It said “value maximization” and “deal certainty” would be among the factors that would guide its decision.

1MDB “is bound by confidentiality” and can’t comment further at this time, it said in an e-mailed statement. Malaysia’s Ministry of Energy, Green Technology and Water didn’t immediately respond to an e-mail seeking comment. A spokesman for China General Nuclear declined to comment, while a representative for its main listed unit, CGN Power Co., didn’t immediately respond to a request for comment. Representatives for Nebras and its controlling shareholder, Qatar Electricity & Water Co., didn’t respond to requests for comment.

Tenaga, which last month reported that its fourth-quarter profit fell almost 40 percent, has said its ownership of the 1MDB power plants would ensure “continuing Malaysian control” of those “strategic” assets. It said 1MDB’s assets would enhance its earnings and cash flow by boosting its domestic power generation capacity and broadening its global presence.

1MDB owns a net generation capacity of 5,594 megawatts and is the largest independent power producer in Bangladesh and Egypt, according to its website. Besides investments in plants in Pakistan and the United Arab Emirates, it has 3,112 megawatts of capacity in Malaysia, making it the nation’s biggest independent power producer after Malakoff Corp.

— With assistance by En Han Choong, Mohammed Sergie, Anuradha Raghu, and Aibing Guo

(Updates with analyst quote in fourth paragraph.)
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