STATE-OWNED 1Malaysia Development (1MDB), fresh from pipping rivals for local tycoon Ananda Krishnan's power assets, may sell most of the non-Malaysian assets to Middle East firms.
The assets up for sale include power assets in Egypt, a key market making up one-third of profits of the newly acquired firm, Tanjong Energy Holdings.
The assets on sale also include power stations in the United Arab Emirates (UAE) and Pakistan, a source said.
1MDB said earlier this week that it had bought Mr Ananda's Tanjong Energy for US$2.8billion (S$3.5billion).
The company owns and operates three power stations in Malaysia with an effective generating capacity of 1,490MW, accounting for about 6 per cent of the national power supply.
"The main focus of 1MDB is to find new sources of growth for Malaysia. It can invest outside Malaysia but it needs to benefit the country. Owning the foreign assets in its current structure doesn't quite meet those objectives," said the source.
The buyer for the power assets is believed to be Saudi Electricity & Water Company. It submitted the highest bid for Tanjong Energy's power assets but the bid carried conditions. One condition was securing a local partner for the Malaysian assets. This left 1MDB's offer considerably more compelling for Mr Ananda, said a source.
As part of its purchase of Tanjong Energy, 1MDB will assume a project debt of some RM2.1billion (S$874million), bringing the effective price paid to RM10.6billion.
"The acquisition signals the first step towards fulfilling 1MDB's strategic intent towards fulfilling the country's long-term energy security," said 1MDB chief executive Shahrol Halmi.
The complete sale of power assets located outside Malaysia is but one option. Another source said 1MDB may also consider the cashed-up Saudis as strategic investors in the power assets.
"Bringing in a strategic partner would be a more viable option as opposed to flipping some of these assets. The power plants in Egypt are the biggest providers of power to the country. There's an opportunity for a bigger power play by tying up with partners with huge access to capital," said a source close to the deal.
A listing of these power assets on the Malaysian stock exchange is also on the cards. Investment bank Goldman Sachs is 1MDB's adviser on the deal.
Tanjong Energy owns and operates eight power plants and has investments in five power plants in Malaysia, Egypt, Bangladesh, Pakistan, Sri Lanka and the UAE.
The key markets are Malaysia, making up 47 per cent of profits; and Egypt, contributing another 34 per cent.
It also has a 10 per cent effective interest in a water desalination plant in the UAE. 1MDB, said the source, is in talks with an Abu Dhabi state-owned firm for the sale of this non-controlling stake.