Malaysia's troubled sovereign fund, 1Malaysia Development Bhd (1MDB), is planning to raise US$4.6 billion (RM15 billion) in what analysts say will be Asia's biggest public offering of this year, the Edge Review reported.
According to the report, 1MDB is hoping to ease its crippling debt burden by listing its power-generation assets through an initial public offering (IPO) scheduled for November.
Cornerstone investors will include state-owned entities from Abu Dhabi (20%) and Qatar-based investor groups (5%).
Financial executives familiar with the IPO told the Edge Review that investors from Europe and China were being lined up for the remaining 49% stake in 1MDB Power.
"By mid-2015, the power business should have revenues of RM10 billion annually," a Malaysian financial executive told the Edge Review.
1MDB has regularly made the headlines for all the wrong reasons ever since it was set up by Prime Minister Datuk Seri Najib Razak in 2009.
The sovereign fund was set up to spearhead Malaysia's push into strategic investments overseas with an initial seed capital of RM5 billion.
The capital was derived from the issue of government-guaranteed Islamic bonds.
Even then, the Edge Review reported that the issue of the bonds came under criticism from bankers.
"The maiden 30-year bond issue was priced at an annual rate of 5.75%, which was a considerably high level for a government-guaranteed bond as the regular rate was 3.6%."
That was just the start of the brickbats aimed at 1MDB as barely four months after the initial bond issue, the fund ploughed US$1 billion into a joint venture.
1MDB's move to invest 70% of its capital into a single venture with PetroSaudi International Ltd was considered reckless by market analysts.
According to 1MDB's latest accounts, the PetroSaudi investment has been disposed of and the proceeds of US$2.3 billion was invested in a Cayman Island entity.
However, 1MDB's apparent reluctance to use the Cayman Island cash flow to finance its expansion into the Malaysian power and property sectors has raised eyebrows.
"Questions have been asked over the security of 1MDB's investment in the Cayman Islands," the Edge Review reported.
1MDB has also been criticised for paying hefty premiums for a portfolio of regional energy assets from Tan Sri T. Ananda Krishnan and Genting Bhd.
At a time when the long-term concessions held by Tanjung and Genting were close to expiry, 1MDB paid US$2.67 million and US$723 million respectively to the two firms.
Pakatan Rakyat lawmakers attacked the purchases by 1MDB, arguing that the payments were a roundabout manner of channelling funds back to Barisan Nasional.
1MDB's group accounts also attracted criticism as beneath the apparently rosy figures was a different story under closer scrutiny.
The rosy profits of RM676 million were largely derived from the revaluation of still-to-be-developed properties located on the fringes of Kuala Lumpur.
In its latest published accounts, 1MDB declared debts of RM36 billion, which was a 357% increase from 2012.
Furthermore, because 1MDB's borrowings are guaranteed by Putrajaya, the debt-laden sovereign fund is the most serious contingent liability for Najib.
Although promoters of 1MDB's IPO said the bulk of proceeds from the listing will be used to pay off the group's debt, the sovereign fund is likely to remain troubled.
Investment analysts said the projects which 1MDB is involved in all required massive capital. – April 25, 2014.