By Yantoultra Ngui and Praveen Menon
KUALA LUMPUR (Reuters) - Malaysia's second-richest man, Ananda Krishnan, is in talks with state firm 1MDB [TERRN.UL] to become a cornerstone investor in a long-delayed $3 billion (1.97 billion pounds) listing of its power assets, two people familiar with the matter said on Thursday.
The 76-year-old billionaire is considering taking at least a 5 percent stake in 1MDB's energy business, one of the people said. The sources couldn't give a value for the potential investment as talks are continuing.
Such a move by Krishnan would be a major boost for cash-strapped 1MDB. The company, whose advisory board is chaired by Prime Minister Najib Razak, faces mounting criticism of its strategy. It plans to use funds from the initial public offering to cut a near $12 billion debt pile and to expand its business.
The IPO is now likely to take place in the second quarter of this year, according to one person involved in the deal.
"The uncertainty (with 1MDB) is what's causing the volatility the in market," said Wellian Wiranto, economist with OCBC Bank in Singapore.
"If it comes to a point where it's clear that 1MDB doesn't have issues, then I guess it will be net positive for market sentiment."
Financial woes at state-linked firms and weaker revenues from oil exports have put Malaysia's economy under pressure.
The cost of insuring Malaysian sovereign debt has risen the most this year compared with that of its Southeast Asian peers. Malaysia's five-year credit default swaps
"Both parties (Krishnan and 1MDB) are now working on the terms," said one of the sources, who declined to be named as the matter was private.
1MDB officials declined to comment. Officials at Krishnan's investment vehicle Usaha Tegas were not immediately available to comment.
The state investor has been dogged by controversy over the size of its debt, hundreds of millions of dollars of revenue earned by Goldman Sachs (N:GS) for handling its bond issues and a perceived lack of transparency.
LOAN REPAYMENT
Amid a management reshuffle, 1MDB missed a payment on a 2 billion Malaysian ringgit ($562 million) bridge loan that was due end-December to local lenders. That hit its bonds and fuelled broader investor concerns about Malaysia's economy.
Proceeds from Krishnan's investment could be used to repay the bridge loan. The loan is owed to the country's largest bank, Malayan Banking Bhd (KL:MBBM), and smaller lender RHB Capital Bhd (KL:RHBC), and was guaranteed by Usaha Tegas, according to the people familiar with the talks.
The loan guarantee came as part of a transaction Krishnan struck with 1MDB in 2012, when the tycoon sold his power company Tanjung Energy to 1MDB for $2.8 billion.
"They are almost there in terms of a deal," said one person familiar with the discussions, saying that an agreement would be reached by the end of the month.
Krishnan, estimated by Forbes magazine to have a net worth of $9.7 billion as of this month, holds stakes in many of Malaysia's biggest listed firms and is renowned for maximising value for his assets, especially through IPOs. He also has a track record of running profitable power operations through his company Tanjong Plc.
In 2012 Krishnan relisted his pay-TV firm, Astro Holdings Malaysia Bhd (KL:ASTR), in a deal worth $1.5 billion, valuing the whole company at some 15.6 billion ringgit. He had taken Astro private just two years before when it was valued at 8.3 billion ringgit.
($1 = 3.5610 ringgit)