This article first appeared in The Edge Financial Daily, on November 24, 2015.

KUALA LUMPUR: Controversial 1Malaysia Development Bhd (1MDB) is selling all its power assets housed under Edra Global Energy Bhd (Edra) to Chinese-led consortium China General Nuclear Power Corp (CGN Group) for an equity value of RM9.83 billion, cash.

Under the deal — which 1MDB has termed the largest merger and acquisition transaction in Malaysia and one of the largest in the Asian Power sector, to date — CGN Group will also assume all the relevant gross debt and cash of Edra’s assets or operating companies, based on the valuation date as at March 31, 2015.

In a statement yesterday, the state-owned strategic investment fund said the assets are: Edra Solar Sdn Bhd, Edra Energy Sdn Bhd, Powertek Energy Sdn Bhd, Jimah Teknik Sdn Bhd, Jimah O&M Sdn Bhd, Mastika Lagenda Sdn Bhd and Tiara Tanah Sdn Bhd.

1MDB said it, Edra and the latter’s subsidiaries have executed a share sale and purchase agreement (SSPA) with CGN Group and its subsidiaries for the 100% sale of 1MDB’s ultimate ownership of all the energy assets. 1MDB is targeting to complete the transaction by February 2016.

1MDB received the first indicative offers for Edra’s assets in June this year via an international tender process run by its financial adviser, Maybank Investment Bank Bhd, while Rothschild acted as the financial adviser to Edra.

Three firms, comprising Tenaga Nasional Bhd (TNB), CGN Group and Qatar’s Nebras Power QSC, had submitted bids for the assets.

On Nov 5, The Edge Financial Daily, quoting a source, said TNB had put in the lowest bid for the equity of Edra at slightly above RM8 billion, about 20% lower than the closest competing bid.

Edra has 13 power assets in its current stable, with eight of them located abroad, plus the right to build a 2,000mw gas power plant in Melaka.

Describing the sale of its assets as a significant milestone in the Edra monetisation process, 1MDB president and group executive director Arul Kanda Kandasamy said CGN Group was a clear winner based on the objectives of value maximisation, acceptable commercial terms and certainty of transaction execution.

“The purchase by CGN Group brings a significant foreign direct investment commitment to Malaysia. It is [also] a clear vote of confidence in the Malaysian economy,” he added.

CGN Group chairman He Yu, meanwhile, said the investment “represents a major commitment by CGN Group as part of a long-term, global diversification initiative”.

“We will work closely with Edra, a Malaysian-based and Malaysian-run global platform, and together, [we] will take it to the next level.

“Most important of all, we will ensure uninterrupted power supply, using environmentally friendly technologies, and adhere to the fixed terms of the respective power purchase agreements, for the benefit of the people of Malaysia,” he added.

The sale of 1MDB’s power assets to the Chinese consortium may disappoint some parties, one of whom could be opposition lawmaker Rafizi Ramli, the member of parliament for Pandan, who had previously  expressed his concern that selling the power assets to foreigners might affect electricity tariffs.

He was quoted as saying that ownership by a foreign firm would also allow it to undermine local power utility TNB and other power generation firms.

Nevertheless, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had brushed off the claim, saying the government could step in to impose conditions on the foreign consortium should it win the tender to buy Edra’s power assets.

“When we go for international tender, what kind of decision should we make?

“Do we give the tender to another company when a company has made a higher bid? [If yes,] this will definitely tarnish the country’s image internationally,” Ahmad Husni said.

On concerns over security of the country’s electricity supply should the power assets of Edra be sold to foreigners, Ahmad Husni had said the government would ensure that the sovereignty of the country remains intact.

He added that the Energy Commission has the final say in deciding the terms of the power purchase agreements for independent power producers.

In July, TNB purchased a 70% stake in Edra’s Jimah East Power Sdn Bhd, the owner of two undeveloped 1,000mw coal-fired power plants better known as Track 3B, for RM46.98 million.