THE management of Edra Global Energy Bhd, the power generation arm of 1Malaysia Development Bhd (1MDB), has identified two possible parties that can assume the role of pre-initial public offering (IPO) investor, says president Datuk Mark William Ling.

According to him, Edra had narrowed down the candidates to two, from an initial list of six. “It is a strategic decision that has to be made,” he tells The Edge.

While Ling is tight-lipped about details, he says a partnership with either will provide more than just monetary value to the IPO. Both entities would fit well with the power producer as well as give it a better footing on the international power generation scene, he adds.

“It is our (Edra’s board of directors’) fiduciary duty to uphold governance and to maximise the value for the strategic partner, and for the ultimate shareholder — the government.

“The responsibilities here rest with me, the board and the management … the buck stops here with us,” Ling says firmly.

He adds, “As for the decision on which one of the two [will be selected] … Edra will appoint a financial adviser for the evaluation, and the financial adviser will have no financial links to Edra.”

Ling, who has been supporting the plan to float the company on Bursa Malaysia, declines to comment on the previous market speculation that Aljomaih Holding Co of Saudi Arabia and Qatar Investment Authority could be the two shortlisted entities. But he stresses that the pre-IPO investor is part of the bigger picture for Edra to maximise its value.

He is of the view that the initial aspirations should not change.

While Ling does not comment on 1MDB, he says when the power assets were consolidated under the strategic investment fund, the long-term plan had been to extract value, and the plan should be adhered to.

To put things in perspective, Edra has an asset portfolio of 13 power plants — with a net generating capacity of 5,600mw — spanning five countries, including Egypt and Bangladesh, which are potentially lucrative markets. Ling is confident about the company’s long-term growth potential.

His plan for the long term is to grow the group’s generating capacity to 30,000mw, about five times its existing size, and to make it a giant power producer.

Nevertheless, the plan for pre-IPO investors in Edra had earlier seemed to have been scrapped, much like the IPO, with a new emphasis on selling the company’s power assets — a faster way for its shareholder, 1MDB, to raise fresh cash to service its whopping RM42 billion debt.

While Edra has been pegged with an enterprise value of RM16 billion to RM18 billion, news reports say the company should be valued at around RM15 billion.

Several parties have expressed interest in the power generation group. They include IJM Corp Bhd, Tenaga Nasional Bhd, Singapore’s Sembcorp Industries Ltd, Saudi company ACWA Power International, San Miguel Corp of the Philippines and, more recently, Mudajaya Group Bhd.

Ling reiterates his belief that the asset sale may not be the best option, considering the current climate. “Edra needs to counter the negative publicity, which insinuates that there is a fire sale of our assets … This (the insinuations) reduces our valuations in a big way.

“We (Edra) will actually obtain more value from an IPO valuation than from a trade sale valuation,” he remarks.

Plans for a large IPO involving 1MDB’s power assets were aimed at easing the strategic investment fund’s financial burden. For the financial year ended March 31, 2014, it paid some RM2.4 billion in finance costs.

The IPO, which was initially set for the first quarter of this year, faced hiccups. For instance, the commencement of Project 3B — a 2,000mw coal-fired power plant project in Jimah, Negeri Sembilan — was delayed due to a lack of financing.

The Energy Commission has now decided to let Tenaga take over Project 3B, which 1MDB won in an open tender.

Tenaga is buying 70% of Project 3B, which is known as Jimah East Power Sdn Bhd, for RM47 million.

The development cost incurred by 1MDB for Project 3B was about RM83.7 million.

The drag on Edra’s IPO does not help 1MDB, which is experiencing tight cash flow.

For the financial year ended March 31, 2014, 1MDB suffered a net loss of RM665.4 million on revenue of RM4.3 billion. The bleeding would have been more severe had it not been for a revaluation gain of close to RM900 million on its property assets.

1MDB’s three main assets are its power plants, a 495-acre parcel dubbed Bandar Malaysia, and a 70-acre real estate development known as Tun Razak Exchange in the heart of KL.

To ease its strangled cash flow, 1MDB plans to appoint a property consultant to evaluate the proposals to monetise its land in Air Itam, Penang, and Pulau Indah, Klang.

1MDB recently sold a 1.6-acre parcel in Tun Razak Exchange to Lembaga Tabung Haji for RM188.5 million, or more than 40 times its purchase price from the government, placing the strategic investment fund in the spotlight for all the wrong reasons.

This article first appeared in The Edge Malaysia Weekly, on July 6 - 12, 2015.

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