|
 The power and property fund, a pet project of Prime Minister Najib
Razak with assets worth $14 billion, was hit by losses last year and
nearly defaulted on a loan payment. The near-miss drove down the
ringgit currency <MYR=> and Malaysian government bonds and prompted
calls from opposition leaders to make the fund's accounts more
transparent.
The state fund's 42 billion ringgit ($11.6 billion) debt includes a
$3 billion bond sale in 2013 that was one of the largest global
issues from Southeast Asia.
Under the aggressive restructuring plan, crafted by new boss Arul
Kanda and blessed by the government, the fund will sell 80 percent
of its power unit Edra Energy via a stock market listing, three
sources with direct knowledge of the situation told Reuters.
More than 18 billion ringgit of 1MDB's debt linked to its power
assets would go under Edra Energy ahead of the listing, which is due
to be kickstarted in 6-9 months time, the sources said.
The fund, which has Najib as chairman of its advisory board, will
also sell the bulk of its land assets and stakes in two high-profile
property projects, Tun Razak Exchange (TRX) and Bandar Malaysia,
after splitting them into separate entities, as already partially
indicated in a strategic review unveiled last month.
The Finance Ministry, which is headed by Najib and is the sole owner
of 1MDB, did not respond to a request for comment.
"HOT POTATO"
1MDB said in an email that Edra Energy would be "monetized" in 2015
and the TRX and Bandar Malaysia projects would be ultimately owned
by the finance ministry.
This process would turn 1MDB into a skeletal structure that could
eventually be dissolved completely, said one person, who spoke on
condition of anonymity because of the sensitivity of the issue.
"It's become a hot potato for the Malaysian government. It was just
too much to handle," said another source.
1MDB said on Wednesday that its plans to list Edra Energy were on
track. It said the fund would re-submit an application for an
initial public offering after cancelling a submission made in
November. It did not elaborate.
Arul, appointed in January to revamp the fund, has carried out a
strategic review of 1MDB's finances and announced last month the
fund would monetize Edra Energy this year, run real estate projects
as standalone entities and sell assets to repay lenders. He did not
disclose any financial details.
A respected former investment banker who was previously at Abu Dhabi
Commercial Bank, Arul was brought in to see if it was possible to
salvage the fund, but decided it was best to wind down its
businesses after carrying out a thorough 6-week review.
[to top of second column] |
"A KNOWN UNKNOWN"
1MDB, which analysts view as a cross between a sovereign wealth fund
and a state-backed strategic fund, was established in 2008 as the
Terengganu Investment Authority with 10 billion ringgit to manage
oil royalty payments to the resources-rich northern state of
Terengganu.
But as Najib came to power in 2009, he renamed it 1MDB and turned it
into a fully-fledged investment fund.
1MDB expanded by purchasing pricey power assets from Malaysian
tycoon Ananda Krishnan and gaming-to-plantation conglomerate Genting
Bhd, and large plots of land in the capital and other regions of
Malaysia, racking up debt in the process until it plunged to a loss
last year.
Krishnan also lent 2 billion ringgit to 1MDB last month, pulling the
fund back from the brink of the possible default on a bank loan
payment, sources said. Officials at Krishnan's investment vehicle
Usaha Tegas were not immediately available to comment.
Political leaders, including former prime minister Mahathir Mohamad,
have demanded an inquiry into 1MDB's finances and are also calling
on the government to explain transactions that they allege resulted
in siphoning off public funds.
Najib said on Wednesday he had instructed the Auditor General to
independently verify 1MDB's accounts after the allegations. But
question marks remain on whether investors would be interested in
the fund's IPO and sale plans.
"On 1MDB, it really boils down to the lack of transparency which
cements it as a known unknown," said Weiwen Ng, an ANZ analyst based
in Singapore.
"Greater transparency and accountability of the 1MDB issue would
certainly help for future sales of assets and any such possible
restructuring."
($1 = 3.6350 ringgit)
(Additional reporting by Saeed Azhar in Singapore and Umesh Desai in
Hong Kong; Editing by Lisa Jucca and Raju Gopalakrishnan)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
