Troubled state-owned investment fund 1Malaysia Development Bhd (1MDB) has called off plans to sell up to $2.4 billion of Islamic bonds, a report said.

The Islamic bond or sukuk had been earmarked to raise funds for the construction of a $3.6 billion green field 2,000MW coal-fired power plant, known as 3B, in the state of Negeri Sembilan, reported the Gulf Daily News, our sister publication.

'The sukuk issue has been called off and they are not moving ahead with the exercise anymore,' a banker familiar with the deal said.

If the sukuk issue had gone ahead in December, as earlier planned, it would have been the biggest Islamic bond deal of 2014. The Malaysian fund, which owns 16 power and desalination plants in six countries, has been dogged by controversy over its nearly $12 billion debt pile and criticised for a perceived lack of transparency.

1MDB is also expected to withdraw from the 3B power project, another source said, adding that an announcement would be made soon.

Malaysian media reported that 1MDB may pull out, thereby allowing Malaysia's largest power group Tenaga Nasional Bhd to take over the project.

1MDB declined to comment on either its sukuk plans or the power project. A spokesman for Tenaga Nasional said the company was unaware of such reports.

1MDB partnered with Mitsui to win the bid for Project 3B in February last year, beating YTL Power International, Tenaga Nasional Bhd and Malakoff Corporation Bhd.

The greenfield power plant that was expected to start operations in 2018 and run for 25 years has been hit with delays.

The loss of the power project may further dampen investor interest in 1MDB's planned $3 billion power IPO, which is expected later this year. – TradeArabia News Service