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Rationalisation or monetisation, more to 1MDB’s Edra sale than meets the eye…

November 25, 2015

 

Published: 25 November 2015 Dzulkefly Ahmad (TMI)

Call it rationalisation or monetisation, the fact remains that no one doubts that the sale of Edra Global Energy Berhad to a Chinese consortium, led by China General Nuclear Power Corp (CGN), was meant to cut 1Malaysia Development Berhad’s (1MDB) heavy debt burden. Bloomberg alluded that 1MDB is getting ready to wind down its operations.

Granted, in many instances the 1MDB’s debt burden were evidently self-inflicted. Paying for assets hugely in excess of market prices and finally getting into a situation where so-called “strategic assets” are incapable of generating revenues and cash-flow to service for its debt, does not speak very well of “a strategic investment fund” of the government.

So what is so “strategic” about the purchases of the power assets in the first place from either local players and others, spanning five countries. 1MDB wanted to earlier consolidate them all and be a long-term player in the energy sector and to enhance shareholders value. Many doubted that they have achieved any of these corporate targets.

Selling it all as a “distressed sale” of 100% of its ownership in energy assets to a foreign party, after a failed IPO, smacks of sinister motives. Waiving the 49% limit on foreign ownership of strategic asset underscores it all. The failed IPO of Edra did not speak well of its financial state.

So the foreigner was ostensibly willing to pay 20% more than our Tenaga Nasional Berhad. Tenaga was however dead sure of not wanting to pay for anything more than what it is worth. An analyst at Hong Leong Investment quipped that Tenaga does not want to be accused of bailing out 1MDB, hence was not willing to contest CGN’s offer. Whether this sale has far-reaching consequences on the issue of “energy sovereignty” of the nation is now open to debate.

But all the more puzzling is why CGN was willing to do it. We shall address that issue later. 1MDB group president Arul Kanda Kandasamy was visibly very elated as he is reported to have said that the sale is “a significant foreign direct investment committment to Malaysia and a clear vote of confidence in the Malaysian economy”.

After all that has happened to 1MDB, Arul does not have to be overly condescending. Some may fall off their chairs, amused and others bemused.

Let us look at some ballpark numbers cursorily.

1MDB purchased the Edra assets totalling RM12 billion, and as well inherited a debt of RM6 billion…

Continue reading it here..
– See more at: http://www.themalaysianinsider.com/opinion/dzulkefly-ahmad/article/rationalisation-or-monetisation-there-is-more-to-1mdbs-edra-sale-than-meets#sthash.j0qpSExY.dpuf

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