A Kuala Lumpur listing may help to smooth over misgivings about Chinese ownership of Malaysia’s second largest independent power producer.
It will also determine if investors are still overwhelmed by the noxious fumes of the wider fund scandal.
Edra Global Energy is a product of a debt-fuelled acquisition spree by a fund that prompted investigations worldwide into money laundering and left the Malaysian taxpayer on the hook for billions of dollars.
Between 2012 and 2013, 1MDB spent over RM12 billion snapping up coal and gas-fired plants in Malaysia, Egypt, Pakistan, the United Arab Emirates and Bangladesh.
The power assets were attractive but an attempt to list the unit in early 2015 failed amid mounting controversy around 1MDB.
Then, as part of the fund’s deleveraging effort, Edra was sold to the Chinese.
A listing in Malaysia would return a local identity to the business, and might provide political insurance for its current owners too.
It is unclear, for example, if Edra’s sale would be reviewed if Prime Minister Najib Razak and his party were to lose in the next general election (GE14).
Opposition politicians are already calling for local pension funds to boycott the IPO, arguing that taxpayers have already been forced to bear the debts of 1MDB once, and shouldn’t have to do so twice.
Assuming the IPO of up to US$1 billion (RM4.29 billion) reflects a free float of 25%, Edra would have a market value of as much as US$4 billion.
Such a valuation, substantially higher than what the Chinese paid, could be partially justified by the company’s progress in securing power purchase agreements.
But it would also be awkward for the Malaysian government.
Either way, the botched listing earlier this month that forced South Korean conglomerate Lotte – which is embroiled in its own controversy – to cut the size and price of an offer for its petrochemicals unit suggests investors are still wary of Malaysian political risk.
Selling 1MDB’s power assets may not be any easier this time around.