Keeping it within the family

There is a growing concern about 1MDB’s proposal to rationalise its investments on energy and power generation conglomerate Edra Global Energy  Bhd. (Edra), as part rationalisation of 1MDB’s capital and debt exposure, that the new owners would be foreigners.

It is part of Group Exec. Director Arul Kanda’s rationalisation plan for capital and debt restructuring and operationalisation of investment within 1MDB, presented and approved by he Cabinet of 29 May 2015.

The bids for Edra Energy are already in:

The Star story:

1MDB draws up Edra list, TNB included

Thursday, 24 September 2015

PETALING JAYA: 1Malaysia Development Bhd (1MDB) has reportedly shortlisted several foreign parties, including Qatar’s Nebras Power QSC, Hong Kong-listed CGN Meiya Power Holdings Co and Saudi Arabia-based ACWA Power International for the sale of its power generation arm, Edra Global Energy Bhd.

Tenaga Nasional Bhd (TNB) has also been selected to participate in the sales of 1MDB’s power plants, according to a report by Bloomberg.

The report quoted sources as saying that the assets may fetch an equity value of as much as RM8bil.

The Bloomberg report also noted that foreign bidders might be restricted to owning no more than 49% of the plants and would be encouraged to team with a local partner, unless they seek an exemption.

1MDB had yet to revert to StarBiz queries on whether it had applied for a waiver to sell its power assets to foreigners and a confirmation on some of the bidders shortlisted.

The Energy Commission said it had referred StarBiz queries to the Energy, Green Technology and Water Ministry.

The ministry has yet to reply.

On Sept 7, 1MDB said it had already shortlisted four parties for the final bidding stage for the sale of Edra Global but it did not disclose the names.

1MDB is a wholly owned subsidiary of the Finance Ministry and is facing cash flow problems with debts of almost RM42bil.

It has assets of more than RM51bil, which are mostly in the form of land for development.

1MDB plans to sell Edra as part of its restructuring to reduce its debts.

Edra has five domestic and eight international power plants with total capacity of 5,500MW that are estimated to be worth RM12bil collectively.

In July, TNB had bought Edra’s 70% stake in Project 3B or a 2,000MW coal-fired plant in Jimah, Negri Sembilan, for RM46.98mil.

Last week, StarBiz reported that Edra Global has invited parties to build a new power plant to be located in Alor Gajah, Malacca.

In an advertisement, Edra stated that it was inviting “prospective applicants to express their interest in participating in a tender exercise for the design, engineering, procurement, construction and commissioning (EPC) of a 1,800MW to 2,400MW combined-cycle gas turbine (CCGT) power plant in Malaysia for Edra and/or its nominee”.

Edra’s advertisement said the power plant project would utilise advanced gas-turbine technology to realise the highest thermal efficiency consistent with the expectation of the power industry.

According to its website, CGN Meiya Power is a diversified independent power producer in Asia in terms of fuel type and geography, with a portfolio of wind, solar, gas-fired, coal-fired, oil-fired, hydro, cogeneration and fuel cell power generation projects and a steam project in China and Korea.

ACWA Power is a developer, investor, co-owner and operator of plants with a generation portfolio of 15,731 MW of power and 2.37 million m3/day of desalinated water with an investment value in excess of US$23bil.

Meanwhile, the Doha-based Nebras Power was established in 2014 and has the backing from Qatar Investment Authority through a 20% stake held by Qatar Holding LLC.

Nebras Power said on its website that it is making targeted acquisitions in South-East Asia, Europe, and MENA region, as well as forming major energy services partnerships.

Edra Global Energy Bhd. which was slotted for IPO exactly a year ago but it was postponed. Bids were received for the rationalisation of Edra, which include from foreign corporations.

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At the moment, these foreign bids poses as a hindrance for 1MDB to hive out its investment as part of the rationalisation plan.

The Star story:

Foreign shareholding limit poser for Edra Energy sale

Saturday, 26 September 2015
By: LEONG HUNG YEE

AS the race towards the sale of Edra Global Energy Bhd picks up, it is still not known if the transaction would be the first to see foreign shareholders owning more than 50% stake in power plants.

Of the four bidders that have been reported to be interested in Edra Energy, three are foreign names, with Tenaga Nasional Bhd being the sole party from the domestic market being interested.

Among the foreign parties, at least one has confirmed it has been in talks with 1Malaysia Development Bhd (1MDB) in respect to the purchase of the power assets.

Hong Kong-based CGN Meiya Power Holdings Co Ltd has confirmed it is interested in 1MDB’s power assets and has been in talks with the latter.

“… there have been preliminary discussions as to the proposed acquisition by the company and/or its affiliates of an interest in certain energy assets of 1MDB. However, no binding or definitive acquisition documentation has been entered into by the company in respect of the proposed acquisition. As such, the proposed acquisition may or may not proceed,” CGN Meiya says in a statement on the Hong Kong Stock Exchange.

State-backed CGN Meiya, an arm of China’s biggest atomic power generator is a diversified independent power producer in Asia in terms of fuel type and geography, with a portfolio of wind, solar, gas-fired, coal-fired, oil-fired, hydro, cogeneration and fuel cell power generation projects and a steam project in China and South Korea.

At the moment, foreign bidders are restricted to owning no more than 49% of the plants and are generally encouraged to team with a local partner to own power plants. This is a practise that has already been adopted by the Energy Commission when it put up the power plant projects for a competive bidding process.

Interestingly, this week, a local daily reported that there were concerns should the power plants of Edra be sold to foreigners as it would mark for the first time assets such as power generation plants to be controlled by parties who are non-Malaysians. The report further stated that more worrying was that the sale to foreigners would hamper opportunities for local vendors including bumiputra vendors.

The relevant authorities involved in the sale of Edra and foreign shareholding restrictions on power plants and 1MDB have so far not reverted on this matter.

The Energy Commission (EC), which is the regulator of the industry, referred StarBizWeek’s queries to the Energy, Green Technology and Water Ministry (KeTTHA).

“We have given some input (on this matter) to KeTTHA,” says an official.

The ministry, however, has yet to respond to the queries.

Meanwhile, at the time of writing, 1MDB has yet to reply to questions from StarBiz earlier this week on whether foreign-owned entities were among the bidders for Edra Energy and whether it had applied to the relevant authorities on seeking an exemption on foreign shareholding of the power plants.

Industry players say the participation of foreign buyers will likely be limited to 49% as with the case with participation of foreign bidders for new generation capacity in the past.

“Foreign parties are not allowed to own a majority stake in the power firm due to a nationality requirement under its power purchase agreement,” a banker notes.

Association of Water and Energy Research (Awer) president S. Piarapakaran says that based on the last two competitive bidding processes, the policy is straight forward – a maximum 49% cap on foreign equity.

“Secondly, electricity generation is also part of national energy security. Having a lot of power plants owned with higher foreign equity is not seen as a favourable move for a small economy like Malaysia,” he says.

Piarapakaran says any sale to entities that are foreign-controlled will create a precedence to other power plant owners to sell power plants to foreign companies.

“Therefore, the EC must be clear on government policies, bearing in mind that setting a precedence may backfire,” he says.

The sales of 1MDB power assets, valued at RM18bil in its books, is certainly gaining traction.

Early this week, 1MDB reportedly shortlisted several foreign parties, including CGN Meiya Qatar’s Nebras Power QSC and Saudi Arabia-based ACWA Power International for the sale of Edra.

TNB has also been selected to participate in the sales of 1MDB’s power plants.

The sale of Edra Energy is part of 1MDB’s rationalisation plan to reduce its debts of close to RM42bil.

1MDB was supposed to list Edra by the first quarter of this year, but had to withdraw its application due to uncertainties in relation to a 2,000MW coal-fired plant dubbed Project 3B.

The sale of 1MDB has not only attracted foreign parties but also local players. Besides TNB, the other companies that had expressed interested were YTL Power International Bhd and Malakoff Corp Bhd. But only Tenaga has put in an indicative bid.

On Sept 7, 1MDB said it had already shortlisted four parties for the final bidding stage for the sale of Edra Global but it did not disclose the names.

Edra has five domestic and eight international power plants with total capacity of 5,500MW worth RM12bil collectively.

In July, TNB had bought Edra’s 70% stake in Project 3B or a 2,000MW coal-fired plant in Jimah, Negri Sembilan, for RM46.98mil.

It has been an eventful journey leading up to the sale of Edra.

In the first week of March this year, 1MDB withdrew its submission seeking a listing of Edra Global after failing to meet Securities Commission requirements.

Late March, the Finance Ministry (MoF) appointed CIMB Group for the sale of Edra Global. But the mandate was relinquished a week later. Since then, 1MDB has been looking at a sale of Edra Global.

After the sale of Project 3B to TNB in July, Edra Global is now looking at commencing work on another power plant project in Malacca.

Towards this end, Edra has invited parties to build a new power plant to be located in Alor Gajah, Malacca.

In an advertisement, Edra stated that it was inviting “prospective applicants to express their interest in participating in a tender exercise for the design, engineering, procurement, construction and commissioning (EPC) of a 1,800MW to 2,400MW combined-cycle gas turbine power plant in Malaysia for Edra and/or its nominee”.

Edra’s advertisement said the power plant project would utilise advanced gas-turbine technology to realise the highest thermal efficiency consistent with the expectation of the power industry.

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Naturally, it attracted many eye browse to be raised despite only five out of the thirteen power generation plants are within Malaysian waters.

Utusan Malaysia story:

1MDB jual Edra pada firma asing?

JOHARDY IBRAHIM | 23 September 2015 12:52 AM
11 2 Google +0
KUALA LUMPUR 22 Sept. – 1Malaysia Development Berhad (1MDB) dijangka mengumumkan satu daripada tiga firma asing sebagai pemenang bida untuk mengambil alih 13 aset tenaga Edra Global Energy Berhad miliknya yang bernilai RM10 bilion atau AS$2.3 bilion, dalam usaha mengurangkan hutang piutang syarikat tersebut.

Sumber industri berkata, firma tenaga berpangkalan di Arab Saudi, ACWA Power International dan Pihak Berkuasa Pelaburan Qatar dikatakan berada di hadapan dalam senarai empat pembida, bersama satu lagi entiti asing dan juga firma tenaga tunggal dari Malaysia, Tenaga Nasional Berhad (TNB).
“Keputusan itu dijangka diumumkan secara rasmi selewat-lewatnya awal Oktober ini iaitu minggu depan,’’ katanya kepada Utusan Malaysia di sini hari ini.
Sumber industri bagaimanapun, melahirkan kebimbangan keputusan menjual kepada entiti asing boleh memberi implikasi sebaliknya terhadap 1MDB yang kini bergelumang dengan pelbagai kontroversi dan persepsi.
“Sebanyak 15 peratus aset Edra merupakan loji janakuasa tempatan dan dengan kepentingan menyediakan bekalan elektrik yang lancar ke seluruh negara, ia adalah dalam kepentingan negara bahawa aset-aset itu kekal dikuasai entiti Malaysia, bukan dijual kepada entiti asing,’’ katanya.
Malah ujar sumber industri, langkah ini dikhuatiri memberi kesan kepada kerajaan Malaysia kerana penjualan aset Edra kepada entiti asing bermakna pertama kali dalam sejarah industri strategik negara, aset jana kuasa dimiliki orang asing.
“Bila dikuasai oleh orang asing, siapa dapat membendung kemungkinan harga lebih tinggi jika bukan para pengguna iaitu rakyat Malaysia?,’’ soalnya lagi.
Lebih membimbangkan ujar sumber industri itu lagi, penjualan Edra kepada entiti asing akan menutup peluang kepada vendor-vendor tempatan termasuk Bumiputera yang telah berjaya dibimbing selama ini.
1MDB pada asalnya, mengumumkan rancangan untuk menyenaraikan perniagaan tenaganya pada Julai 2014, untuk menjana dana sebanyak RM11 bilion.
Sebahagian daripada dana itu bertujuan untuk membayar balik hutangnya yang menggunung kepada RM42 bilion setakat 31 Mac 2014.
Menurut laporan, 1MDB ha­­rus memba­yar antara RM2.4 bilion hingga RM2.7 bilion setahun dari segi faedah pinjaman.
Rancangan tersebut bagaimanapun, telah dibatalkan dengan 1MDB memutuskan untuk menjual kepentingannya dalam Edra.
Aset Edra terdiri daripada lima loji jana kuasa tempatan dan lapan antarabangsa termasuk di Bangladesh dan Mesir selain merupakan yang kedua terbesar di Malaysia selepas Malakoff Corp Bhd. Syarikat kerajaan itu juga mempunyai asetnya di Emiriyah Arab Bersatu (UAE) dan di Pakistan menerusi syarikat usaha sama.
Keseluruhannya Edra memiliki kapasiti penjanaan tenaga sebanyak 5,500 MegaWat yang dianggarkan bernilai RM10 bilion oleh bank-bank.
1MDB sebelum ini telah menandatangani Perjanjian Pembelian dan Penjualan Saham (SSPA) dengan TNB untuk mengambil alih 70 peratus kepentingan di dalam Jimah East Power Sdn. Bhd. (JEP), yang dimiliki 1MDB dengan nilai RM46.98 juta.
– See more at: http://www.utusan.com.my/bisnes/korporat/1mdb-jual-edra-pada-firma-asing-1.139242#sthash.owLTnyvf.dpuf

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For the record, the original plan for Edra Energy to be listed was in November 2013. However the delay in the award of Project 3B did not draw the right attraction for the IPO. Eventually, Project 3B was obtained in February 2014 and the works of IPO were restarted and the new target was set for November 2014.

However, the voracious and vile attacks of media such as Sarawak Report, The Edge etc. hampered the market confidence for the revised IPO plans. The delayed of Edra IPO affected the cash-flow of 1MDB and that spiralled into the vicious cycle.

Hence, the game of Edra IPO is back in play and part of the ‘Rationalisation Plan’.

Energy and power generation is deemed as ‘strategic’ and some people see ‘energy security’ as a very strategic interest that the nation should really closely guard.

Regardless, TNB is one of the bidders and there are commercial merits for Edra Energy be part of the nation’s premier power generation and distribution corporation. TNB is one of the core investments under Khazanah Nasional Berhad.

First of all, both Edra and TNB are Malaysian corporations and staffed by Malaysians. The culture and work relationship is seamless. The senior management of Edra are used how Malaysians do things and consumerism.

Edra Global Energy Bhd. portfolio

Edra Global Energy Bhd. portfolio

Secondly, since five of thirteen Edra power generation plants is here in Malaysia, there should be an economies of scale especially in resources and supply chain management.

The third point is that as a strategic investment of the Malaysian Government, Edra being part of TNB would be complimentary to deliver all the socio-economic development plans currently under the 11th Malaysia Plan and there on. Energy planning is a very important element to ensure the the nation’s growth is followed through.

The electrification program into the rural areas is still very much a key ingredient of Prime Minister Dato’ Sri Mohd. Najib Tun Razak’s ‘Transformation Plan’. This include the development and strengthening basic infrastructure to all communities.

Projection of power

Projection of power

An interesting fourth point is that the power generation sector in Malaysia generates USD35 billion per annum. It is of strategic important that Malaysian corporations are the net benefactors of the income derived from this sector.

The fifth point is that Edra is at the moment generating almost 14.4% of electricity within Malaysia. TNB at the moment is providing 55% of the power generated in Malaysia. The acquisition of Edra would bring TNB’s power generation level to over 69%.

The synergy for TNB to acquire Edra as part of its power generation program would definitely brought about economies of scale and strategic benefits not only to the corporation, but Malaysian consumers.

The sixth point is that Edra would be good extension of TNB for revenue of power generation from abroad since eight of the power plants are in Bangladesh and Egypt and associate corporations in UAE and Pakistan. It is a matured investment and could be realised immediately.

On the issue or even perception that TNB and/or Khazanah would be a bail out for 1MDB, it would easily mitigated that TNB is a plc and the shareholders would decide on this strategic corporate exercise.

TNB shareholders

TNB shareholders

After all, the offer would be a commercial in nature and the projection of future income and how it would affect the cash-flow of TNB as a Group would itself be the arguments for the bid.

The decision would be purely based on commercial basis which include the ability of this deal be financed either internally, within the Khazanah Group, from commercial banks and/or financial houses or a hybrid mix of the variable sources.

The fact is that 1MDB rationalisation plan for Edra Global Energy attracted a handful of good foreign bids. It is commercially viable and TNB should take the calculated risk and acquire the conglomerate.

Recently, there are valuable lessons learnt from the artificial controversy arisen from really bad bloggers canvassing the hiving off of the TRX parcel to Tabung Haji was advocated as “Bailing out 1MDB”. The fact is that, the TRX deal was a very good investment with huge commercial potential and its reflective from other deals.

It is without doubt that for the strategic sake of Malaysia, this deal should be transacted from the left pocket to the right pocket, in utmost transparency and on commercial basis.

Published in: on September 27, 2015 at 18:00  Comments (6)  

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6 CommentsLeave a comment

  1. Power generation is a key element for industrial growth. The manufacturing sector cannot do without it. Foreign investors are usually not keen to come in countries with frequent power outages. But what about foreigners owning power generators in the country?

    In war, dams and power plants have always been the target of bombing raids. In a nuclear war – which is the likely scenario for a Third World War – bombing power generators may be inconsequential. As almost everything would be smashed to the ground.

    But during international conflicts not amounting to war – which has been the trend these days – economic sabotage is a key weapon. Including by foreigners owning substantial power generation capability in our country.

    In the case of 1MDB current sale exercise, foreign bidders appear to have been invited though might be restricted to owning no more than 49% of the plants and would be encouraged to team with a local partner. But the report says they may seek an exemption. However, where there are sufficient local companies interested in purchasing, why invite or consider foreign bidders?

  2. Dodn’t realize that TNB at the moment is providing only 31.7% of the power generated in Malaysia. Txs BD for the information.

    On that score alone TNB should be given priority for the acquisition of Edra, which would bring TNB’s power generation level to over 45%.

    Surely price is not the only factor in determining that bid. Even if it is, the final award price could be one that’s negotiated with TNB. That way the seller would not lose much as the element of competition would still be there.

  3. “only five out of the thirteen power generation plants are within Malaysian waters”?

    Then if the Edra purchasers are foreign or include foreign shareholders, the local aspect of the business will be diluted further, won’t it? Both in terms of locations of the power plants, their ownership, and possibly management as well.

    Those plants within Malaysian waters must of course be Malaysian-managed in all respects. The majority of the power plants should be within Malaysia, Malaysian owned and managed. Good that Edra is building another in Malacca.

    But can TNB not purchase Edra by itself? Surely it has sufficient cash, assets, management, technical manpower etc. Heck, it has its own university steadily producing electrical engineers for goodness sake.

  4. Curiosity in the profitability of power generating plants led me to the article in the Economist entitled “European utilities – How to lose half a trillion euros”.

    Excerpts:

    “In June 2013, something very peculiar happened in Germany’s electricity market. The wholesale price of electricity fell to minus €100 per megawatt hour (MWh). That is, generating companies were having to pay the managers of the grid to take their electricity.

    “The trouble is that power plants using nuclear fuel or brown coal are designed to run full blast and cannot easily reduce production, whereas the extra energy from solar and wind power is free. So the burden of adjustment fell on gas-fired and hard-coal power plants, whose output plummeted to only about 10% of capacity.”

    And so many other quite technical-sounding explanations. All in all, it seems to me that putting one’s money on power generating plants that are located in one’s own country has less risks than otherwise. One may have some influence, or can plead better, on the policies on renewable energies, the fuel mix to use and the like.

  5. I can see where BD is going with this. It is good that post-Edra acquisition, the TNB power generation capability is over 45%.

    Perhaps, TNB should acquire more IPPs, to be the real major power producer beyond the 50% threshold market share.

    It is interesting to note that if TNB is going ahead with acquiring majority if not whole of Edra, then Khazanah got to abstain from voting at the EGM.

    Khazanah would breach the Related Party Transaction, with the near 30% holding. The other shareholders would decide on this.

    Actually, EPF should work it’s way to increase its holding and subscribe to any commercial papers issuance pertaining to the fund raising exercise that would arise from acquiring Edra.

    So should ASB.

    These trust investment bodies could bring about the strategic benefit from future earnings and yield, as well as market capitalisation growth from the expansion of TNB.

    The eight plants abroad is actually the icing. TNB would stand to gain with the entrance into international power generation , through Edra.

    TNB has proven growth of revenue by almost 25% to RM43b, with EBITDA grew more than 650% in the same corresponding period.

    The last quarter (2Q2015), TNB recorded PBT of RM1.8b. The PE today is at 8.6 times, at slightly over RM12 per share.

    There is the commonsense that Malaysians would eventually benefit from the economies of scale, even with bigger market share and expansion.

    Perhaps the TNB BoD should make the ‘extraordinary’ efforts to ensure the acquisition is in their favour. It is ashamed if they bungle on this deal.

    After all, Khazanah is filled with ex-high street consultants and merchant bankers, who specialise in making 5 star capital and debt market presentations.

  6. […] of the strategic interest of the nation, with the decision to retain Edra Global Energy Bhd. within the control of Malaysians or allow foreigners to inch their way in, as part of the 1MDB ‘Rationalisation […]


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