By P. R. VENKAT
Wall Street Journal
Oct. 17, 2015
Malaysia’s government investment fund has received three bids from domestic and international companies to buy its power assets, as the embattled state-run firm tries to dig itself out from its US$11 billion debt load.
In a statement late Friday, 1Malaysia Development Bhd., or 1MDB, said that it had received “binding and fully funded offers from three strategic investors.” 1MDB didn’t mention the names of the bidders for the assets, which are owned by a unit called Edra Global Energy Bhd.
Only one of the bidders publicly said it made an offer for the power assets. That bidder, another state-run power company called Tenaga Nasional Bhd., which is 30% owned by Malaysia’s sovereign-wealth fund Khazanah Nasional Bhd., said Friday that it had submitted a conditional offer.
Tenaga didn’t say what it bid for the assets, but added that its bid was subject to conditions that included support from its outside shareholders for any potential transaction and more information from 1MDB on the power plants’ operations. It wasn’t clear why Tenaga’s description of its offer as conditional appeared to contradict 1MDB’s characterization of all three offers as binding.
1MDB’s travails have put Malaysian Prime Minister Najib Razak in the spotlight, while hammering investor confidence in the commodities-exporting Southeast Asian nation at a time when it is suffering from fund outflows and falling oil prices.
Though the proposed sale of 1MDB’s power plants initially attracted several local and international players, the interest petered out.
Last week, China’s top state nuclear firm dropped out of bidding for 1MDB’s power assets. On Friday, Hong Kong-listed CGN Meiya Power Holdings, an independent power producer that focuses on clean and renewable power-generation projects, said it decided not to proceed with the proposed acquisition of certain 1MDB power assets.
1MDB appeared to overpay for the power assets when it bought them in 2012 from two Malaysian companies. It wrote down the value of the purchase from one of the companies, and the seller recorded a big gain on its financial statements. 1MDB said the premium it paid reflected the experience of the staff that ran the power plant. The fund paid roughly 12 billion ringgit ($2.85 billion) for the plants in 2012, and valued them at around $4 billion in a planned initial public offering earlier this year.
After the deal, funds tied to one of the companies were donated to a Najib-linked charity, which later donated money to schools in a battleground state during a tightly fought national election, according to a Wall Street Journal report in June.
People with knowledge of the impending sale said it is increasingly unlikely 1MDB would get back what it paid for the power assets. One of the people said Tenaga is likely to proceed with the deal only if it made strategic sense. Given that Tenaga is a publicly traded company with outside shareholders, the company wouldn’t want to be seen as bailing out another state fund, the person said.
“Any potential transaction would need to make strong commercial and financial sense, be value-accretive to TNB’s shareholders, and be assessed based on the highest standards of corporate governance,” Tenaga said in a statement on Friday.
People following the transaction said if 1MDB was forced to take a loss on the transaction, the buyer would likely be Malaysian since the government didn’t want to be seen as giving away a bargain to foreigners.
Azman bin Mohd, Tenaga’s chief executive, said that as a major power producer in Malaysia, the company is the “best and most logical buyer” for the assets. “As the country’s largest power producer, no other bidder knows these assets better than TNB.”
However, he emphasized that a transaction can be completed only if Tenaga’s conditions were met by 1MDB.
1MDB said in its statement that it will start evaluating the offers in the next few weeks and will be guided by its goal to get maximum value for its shareholders through the asset sale. “We expect to enter into a definitive agreement with the chosen party shortly after the evaluation and negotiation process has been completed, before the end of 2015,” 1MDB said.
Mr. Najib formed 1MDB in 2009 to spur growth in the Southeast Asian country, but the fund has since rolled up over $11 billion in debt and is the focus of a series of global investigations. The 1MDB affair has embroiled Mr. Najib in Malaysia’s biggest political controversy in years. Malaysian investigators earlier this year had traced $700 million into Mr. Najib’s alleged bank accounts through agencies, banks and companies linked to 1MDB, The Wall Street Journal reported in July. The fund has in the past denied wrongdoing and said that it was cooperating with authorities.
The government investigation hasn’t detailed what happened to the funds that went into the prime minister’s alleged personal accounts, most of which it determined were received ahead of national elections in 2013. Mr. Najib has denied any wrongdoing or taking money for personal gain.
—Celine Fernandez contributed to this article.