Isnin, 11 Mei 2015

Ways to save 1MDB’s strategic assets




Ways to save 1MDB’s strategic assets

by 
Wan Ahmad Fayhsal


There is only one main concern in saving 1MDB: the assets. 1MDB as company can and should be dismantled but the assets must fall into the right hands.
           
Since IPO is still the strategy of choice for MOF Inc., we must think hard how to unlock the value for Edra Energy’s IPO? How to ensure Edra – despite of its sitting on huge pile of debt – could still offer a really promising and attractive value propositions to potential investors?


1st way: Go nuclear

Besides of parading the traditional stable of power plants consists of gas and coal-fired ones, a good value proposition that Edra Energy could put forth in its IPO is by bringing in nuclear power project into its fold.

Concession period for nuclear power plant (NPP) is far longer than ordinary power plants. Like Turkish first NPP at Akkuyu, the payback period is 18 years with internal rate of return (IRR) more than 8%. The price of its feedstock – uranium – will not be influenced by fluctuation like the feedstocks of ordinary power plants, which are left at the mercy of global oil and gas prices.

In short, by having nuclear power plant as part of its power assets, the valuation of Edra Energy’s IPO could be made higher due to the long-term income stability it offers through the NPP. The prospect will be a tremendous one for potential investors.

Maybe someone would ask, how on earth could we finance this huge NPP project? We already have a good partnership model. One of the best financing models in the market is the one currently being used by Akkuyu nuclear power plan project in Turkey.

The Akkuyu project is the world’s first-ever nuclear power plant project that made use of the Build, Operate, and Own financing model or better known as BOO. Under this model, Rosatom State Atomic Energy Corporation (ROSATOM) will finance the whole project in its initial stage. Subsequently later they will sell, in the case of Akkuyu, 49% of the equity to external investors. With fixed purchasing power agreement (PPA) and fixed output from the nuclear power plant, the project surely able to attract big time investors.


2nd Way: Appoint Khazanah as anchor investor

1MDB is a strategic development company that pretty much mirrors Khazanah Nasional. Both entities are presided by the Prime Minister Dato’ Seri Najib as its chairman of the boardroom level where in 1MDB, the Prime Minister acts as the chairman of board of advisors while in Khazanah he is the chairman of board of directors. Both entities are guaranteed by MOF Inc. which is lead also by Dato’ Seri Najib as the Finance Minister.

What role should Khazanah play in saving 1MDB’s assets? Khazanah under the directive of the Prime Minister should be an anchor for the taking over the assets of 1MDB.

Khazanah could issue a bond with a clear intent and goal of “securing distress assets with lot of upside potential”. Both main assets of 1MDB – the land bank of Tun Razak Exchange at Sungai Besi and its power plants have huge growth potentials in which with the right strategies could really attract huge investors as well.


Can it be done?

The issue of feasibility is a no brainer. We just need to look how past leadership especially under then (Tun) Dr Mahathir managed to save Tabung Haji’s investment in palm oil at Riau, Indonesia in year 2002. The restructuring exercise finally led to the listing of TH Plantations in Bursa Malaysia.

A paper loss due to asset shuffling earlier was resolved by the restructuring team. They were not only able to stop the bleeding by recouping the losses, but also made handsome profit after selling the plantation to an Indonesian company. It was a win-win situation for all including the shareholders at large – the depositors of Tabung Haji.

This can be done to 1MDB as well. Once the debt is being cleared, assets being transferred to the right owners e.g. Khazanah therefore the listed company must be collapsed by selling it out in order to recoup the initial investment which direly needed to service the loan in order to avoid foreclosure.

Or we can learn from how Tun Dr Mahathir’s special economic advisor like Tan Sri Nor Mohamed Yakcop who managed to orchestrate a successful revitalizing plan for Malaysian economy post-financial crisis 1997 by restructuring troubled Malaysian companies.

Under the directive of Tan Sri Nor, he and his team managed to restructure many debt-laden government link companies (GLC) via special purpose vehicles of Pengurusan Danaharta Nasional Bhd (Danaharta) was formed under the parliament act and Danamodal Nasional Bhd (Danamodal) which received full backing as Bank Negara.

Once the troubled companies – the likes of Renong, Time Engineering, Perwaja, Crest, Petroleum, TV3, NSTP – were restructured by Danaharta through mergers and acquisitions exercises, government injected fresh capital via Danamodal into this companies. Government recouped the investments (plus profits) after listing them.

All of these rescuing efforts had not involved any external funding and assistance from outside. Yes, technically it is a form of bailout but it was done in proper manner without incurring unnecessary losses. In this saving game, bailout is the consequence, not the goal.

But this must be made very clear to the public at large that the listing of 1MD subsidiary like IPO is done with the intent to secure the distressed assets, not to save 1MD, neither it is meant to generate quick profits. All profits generated from this exercise will be shared in transparent manner to all subscribers at large in which the majority will be the depositors that hold accounts in the public fund institutions.

Collapsing 1MDB

Exit strategy must be made clear to all subscribers where the initial investments must be regained and channeled back to the investors. 1MDB must be winded down as part of the restructuring exercise. This will boost public confidence as well as government’s credential in managing astute crisis like this.

Apportioning of blame must come later. We are not saving the people who are guilty. Saving 1MDB it's not a winning game. Both ways will still incur losses. Both ways require saving institutions to take part. It's a matter of the depth of the losses. 

Like saving the injured accident victim. He may lose his leg or arm (eventually replaced by prosthetics) to save his life! So too 1MDB, it will definitely be a painful one.

The author is a fellow at Putra Business School. The article fist appeared in the The Malaysian Reserve, 11th May 2015.


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