This article first appeared in The Edge Malaysia Weekly, on February 15 - 21, 2016.

Sabah is looking to develop its own sovereign wealth fund — Sabah Development Bhd — in the fashion of Khazanah Nasional Bhd, which is wholly owned by the federal government, sources say.

It is understood that the final details — such as what assets will be injected into the entity — are being discussed now, and the plan has been gestating for more than a year.

“The plan is for the Ministry of Finance of Sabah to control the entity. The initial plan [involves Sabah Development having] a presence in a few sectors such as oil and gas, financial services and infrastructure, and possibly even one unit conducting strategic investments,” a source says.

According to the source, state-controlled Sabah Development Bank Bhd (SDB) — as part of a streamlining — could inject some assets into Sabah Development.

To recap, SDB obtained the approval of Sabah’s Ministry of Finance in August last year to restructure internally as well as demerge and transfer its non-banking operations.

“This restructuring is to enable the bank (SDB) to focus on its core banking activities. There is a water concession and an oil and gas unit under SDB. If all goes well, the restructuring could be completed by the first quarter of this year, which would mean that the Sabah Development fund would be more or less ready as well,” the source adds.

Checks with the Companies Commission of Malaysia reveal that Sabah Development was incorporated and registered on July 6 last year.

It has a paid-up capital of RM2 and six directors, including Datuk Peter Siau Wui Kee, who is the chairman of SDB and has worked in various state agencies and Standard Chartered Bank, and Datuk Kevin How Kow, a director of SDB who sits on the boards of Cahya Mata Sarawak Bhd, Sarawak Cable Bhd and M3nergy Bhd, to name but a few.

The other directors are Datuk Yusoff @ Hunter Mohamed Kasim (ex-director of Malaysian Airline System Bhd and several other private companies), Datuk Peter Lim Siong Eng (managing director and CEO of SDB who started out in Public Finance Bhd and previously worked in Supreme Finance Bhd and City Finance Bhd, which morphed into EON Finance Bhd), Petrus Gimbad (director of SDB, a former Petronas alumni and director of Eastland Equity Bhd) and Datuk Hassanel Mohd Tahir (permanent secretary in the Sabah government’s finance ministry).

The equal shareholders of Sabah Development are How and Lim. However, the shareholding can be changed if the state decides to surface, and the paid-up capital could be given a boost as well.

It is unclear where the funds for Sabah Development will come from — it may be in the form of oil royalties.

Interestingly, Sabah Development’s nature of business is stated as “Activities of holding companies”.

A large portion of the assets under Sabah Development is expected to be oil and gas, with the outfit having a wide reach in the sector. Among the main assets will be M3nergy (formerly known as Trenergy (M) Bhd), which was taken over by SDB in 2013 following a debt-for-equity swap.

M3nergy has two floating production, storage and offloading vessels — FPSO Perintis and FPSO Ratu Nusantara — and a floating, storage and offloading vessel called FSO Ratu Songkhla.

Last month, the company entered into an agreement to acquire FPSO Bertam from Swedish company Lundin Petroleum for US$265 million (RM1.1 billion). The deal should be concluded in the first quarter of this year, pending the finalisation of M3nergy’s financing.

Sabah Development could also have interests in exploration and production. In November 2014, national oil company Petroliam Nasional Bhd (Petronas) awarded two production sharing contracts for Blocks SB331 and SB332 onshore Sabah to a consortium made up of SapuraKencana Petroleum Bhd, M3nergy and Petronas Carigali Sdn Bhd, the exploration arm of Petronas.

M3nergy has 25% equity interest in the business while SapuraKencana, the operator, has a 70% stake and Petronas Carigali, the remaining 5%.

Another state-owned unit is Sabah International Petroleum Ltd, which has close to a 21% stake in Octanex NL, an Australian listed oil and gas outfit.

Octanex has a 50% stake in a joint-venture company called Ophir Production Sdn Bhd. The other shareholders are Scomi Energy Services Bhd and Vestigo Petroleum Sdn Bhd, which is a unit of Petronas Carigali.

In June 2014, Petronas awarded a small field risk service contract to Ophir Production for the development and production of petroleum from the Ophir field, located off the shores of Peninsular Malaysia.

SDB also owns Ekuiti Yakinjaya Sdn Bhd that has, among other things, a 0.57% stake in Felda Global Ventures Holdings Bhd and 25% equity interest in the Sabah Ammonia Urea project, better known as Samur.

It is unclear if there will be any changes in Suria Capital Holdings Bhd, which is 46.17% controlled by Warisan Harta Sabah Sdn Bhd, a state-controlled entity.

Suria Capital’s core business is the provision of port services and facilities in Sabah through its subsidiary, Sabah Ports Sdn Bhd, which manages and operates eight major ports in the state, and operates ferry terminal services. Suria Capital has obtained the development order for the Jesselton Quay project, which could get off the ground any time now, pending a few minor approvals.

It remains to be seen if Suria Capital will be absorbed into Sabah Development, but all eyes will likely be on the new state-controlled fund over the next few months.

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