By Sentinel
Several months ago, 1MDB had won the bid to acquire Tanjong Energy from Ananda Krishnan for a consideration in excess of RM 8 billion. One weekend in August, rumours swirled regarding a new major acquisition by 1MDB in the power sector.
The “rumours” became reality when an announcement by Bursa said that 1MDB had agreed to acquire a unit of Genting Energy for RM 2.3 billion. That unit of Genting Energy was Genting Sanyen, one of the first generation IPPs with a capacity of 720MW and which came into operation in 1995. The power purchase agreement (PPA) with TNB will expire in 2016. Separately, Genting made a parallel announcement regarding the divestment, adding that it will book a extraordinary gain of RM 1.9 billion from the sale.
Any person with some commercial sense will realise that the book value of the Genting asset in question is only RM 400 million. The PPA has 4 more years to run, after which the asset will be worth nothing more than scrap metal. Even if TNB decides to extend the term of the PPA, it will be on TNB’s terms, and not on Genting’s terms because the alternative to Genting is scrap value of the plant. So why would 1MDB pay RM 2.3 billion for the asset ? Can it recover the RM 2.3 billion in the 4 years remaining of the PPA? Continue reading “1MDB’s RM2.3b acquisition of Genting Sanyen – Questions”