China General Nuclear Power has agreed to buy the power assets of 1Malaysia Development Berhad’s, or 1MDB, for RM9.83 billion ($2.27 billion), the companies said on Monday, bringing much-needed capital to Malaysia's scandal-hit state investment fund.
China General Nuclear Power, or CGN, fought off competition for the assets, known as Edra, from Malaysian utility Tenaga Nasional, helped by cheap funding from Chinese banks and a slide in the value of the Malaysian currency as it seized on the rare chance to buy a platform of power assets spanning five countries.
Edra owns 13 power plants in Malaysia, Egypt, Bangladesh, Pakistan, and the UAE.
“CGN Group was a clear winner in this international tender, based on the objectives announced by 1MDB previously, namely value maximisation, acceptable commercial terms, and certainty of transaction execution,” Arul Kanda, president and group executive director, 1MDB, said in a statement.
1MDB is at the epicentre of a scandal that has rocked the Malaysian government and Prime Minister Najib Razak. The cash sale of Edra marks the first major milestone in the 1MDB rationalisation plan presented to the Cabinet of Malaysia on May 29.
CGN, China’s largest nuclear power company in China by total installed capacity of nuclear power projects, will assume all the gross debt and cash for the power assets.
CGN's financial leverage has risen due to the company's aggressive debt-funded expansion as it strives to meet the government's clean energy policy targets. However, its bonds remain highly rated by credit rating agencies thanks to the Chinese government’s ultimate ownership. Guangdong-based CGN is 90% directly owned by the State-owned Assets Supervision and Administration Commission (SASAC) under China's State Council.
Among the assets it is buying abroad are British power plants. During President Xi Jinping’s recent trip to the UK the two governments announced that CGN will take a 33.5% stake in the Hinkley Point power station in the southwest of England, which is scheduled to be completed in 2025.
The sale of 1MDB’s power unit is the largest announced merger or acquisition in Malaysia, and one of the largest in the Asian power sector, so far this year.
Rule change
The deal only happened because Malaysia granted CGN a waiver to the country’s foreign ownership rules that cap investment in power businesses at 49%, according to a person familiar with the matter.
The share sale and purchase agreement was signed on Monday and is for 100% of 1MDB’s energy assets: Edra Solar, Edra Energy, Powertek Energy, Jimah Teknik, Jimah O&M, Mastika Lagenda, and Tiara Tanah.
Indicative offers for Edra were first received in June via an international tender process run by 1MDB’s financial adviser, Maybank Investment Bank.
The companies expect to complete the transaction by February.
Rothschild acted as financial adviser to Edra. HSBC acted as CGN’s financial advisers. Herbert Smith gave the Chinese buyer legal advice and its accountants were KPMG.
