Malaysian-born, Dubai-based banker, Arul Kanda Kandasamy (pic), will replace 1MDB chief executive Mohd Hazem Abdul Rahman, who was appointed to the post in August 2012
PETALING JAYA: 1Malaysia Development Bhd (1MDB) will be welcoming its third chief executive in a space of just over five years since it was established, as the government-sponsored investment fund struggles to complete the submission of the listing of its energy unit.
Malaysian-born, Dubai-based banker, Arul Kanda Kandasamy (pic), will replace 1MDB chief executive Mohd Hazem Abdul Rahman, who was appointed to the post in August 2012.
1MDB chairman Tan Sri Lodin Wok Kamaruddin announced the appointment of Arul Kanda as president and group executive director of 1MDB with immediate effect and described the change as “part of a transition plan”.
“The board also announces that 1MDB will be undertaking a strategic review to explore and determine a course of action that will allow the company to maximize returns for all of its stakeholders,” it said.
1MDB, which was supposed to complete the submission of its energy unit in December last year, did not eloborate on what it meant by the investment fund undertaking a “strategic review”.
“1MDB will update the market on the outcome of its strategic review in due course,” according to the 1MDB statement.
Bankers said 1MDB’s initial public offering (IPO) of its energy unit had been submitted to the Securities Commission (SC) last month, but was incomplete.
“The submission is incomplete, and hence, the authorities cannot proceed to process the application,” said a source.
1MDB’s listing of its power-generation unit, which has been touted to raise US$3bil (RM10.5bil), is crucial for the fund to pare down debts it accumulated to acquire power plants since 2012.
“Topping the list is a debt of RM2bil that the fund still owes Usaha Tegas Sdn Bhd for its purchase of the Tanjong power assets for RM8.5bil. The debt is supposed to be extinguished during the IPO, but the IPO has been delayed,” said a banker.
During the IPO, Usaha Tegas has the option of converting its debt to an equity stake in the listed company a few years down the road.
Investment bankers do not rule out “issues” with regard to the amount owed to Usaha Tegas as holding back the completion of the IPO.
“It should be Arul Kanda’s top priority,” said an investment banker.
Arul Kanda said he was pleased to be joining 1MDB at this important juncture.
“As the company’s new president, my first priority will be to undertake a comprehensive strategic review of its operations, while ensuring we derive value from the high-quality energy and property assets in the company’s portfolio. I look forward to working with the rest of the 1MDB team as we begin this journey, and am confident that we will achieve the right outcome for the company and its stakeholders.”
Rumours of Hazem’s resignation have persisted over the last two months, where 1MDB had previously refuted queries posed by StarBiz. The reason for Hazem’s departure was not provided by 1MDB.
Critics have often taken potshots at 1MDB for putting its money, including US-dollar debt papers, and parking it with little-known funds outside Malaysia when nearly all its projects and operations are in the country.
Lodin had in the past responded to the criticism, stating that it was normal for funds to undertake such practices.
Arul Kanda, 38, hit the Malaysian corporate scene in 2009 when he was appointed non-independent, non-executive director of RHB Capital Bhd representating Abu Dhabi Commercial Bank (ADCB) that had a stake in the bank. He held the position until the bank sold its stake to a sister company also owned by the Abu Dhabi Government – Aabar Investments PJSC – in 2011.
A graduate from the London School of Economics with a distinction in corporate and commercial law, Arul Kanda has held several positions in the investment banking division of ADCB since July 2008. Before that, he was head of Islamic Financing Solutions at Barclays in London and director of capital markets at Calyon in London and Bahrain.
Aabar still holds a 21.2% stake in RHB Cap.
Arul Kanda’s appointment comes as the market awaits development in the listing of 1MDB Energy that was slated for the first quarter of this year.
1MDB had struck up deals with the Usaha Tegas group and International Petroleum Investment Company PJSC (IPIC) for the RM4.29bil purchase of the Tanjong and Genting power plants, which eventually led to it getting three other power plant projects from the Government.
In 1MDB’s latest annual report, it was stated that 1MDB had incurred a goodwill of RM2.6bil for the acquisition of the power plants.
IPIC is the parent company of Aabar and also a major shareholder of ADCB.
During the purchase, 1MDB also issued US$3.5bil debt papers in two tranches of US$1.75bil each. The papers were issued by 1MDB Energy Ltd and 1MDB Energy (Langat) Ltd. The US-dollar debt papers were secured by guarantees from IPIC.
IPIC came into the picture as it is believed that Usaha Tegas and the Genting group were not comfortable with guarantees from 1MDB, as it would have been perceived to be receiving favours from the Government. This is because 1MDB is wholly owned by the Government.
In return for the corporate guarantee from IPIC, 1MDB had given a 10-year option to Aabar to acquire up to a 49% equity interest in the Tanjong and Genting power plants when the energy division goes for listing.
1MDB’s annual report for the period ended March 31, 2014, said the fund had taken a bridging loan facility worth US$250mil (RM836mil) in May last year and that the proceeds were used to extinguish the options granted to IPIC. Some of the US$1.22bil (RM4.03bil) repatriated back to Malaysia from Cayman Islands has also been used for the settlement of the put option with Aabar.
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