1MDB financials not sustainable, admits MoF

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KUALA LUMPUR: The Ministry of Finance (MoF) has confirmed that the Cabinet did give approval for the RM950 million as standing credit to debt-laden 1Malaysia Development Bhd (1MDB), which the opposition deemed as a form of bailout.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah formally acknowledged for the first time that 1MDB is in an “unsustainable” financial position with a “cash flow problem and a high net gearing of 17 times”.

However, he disputed a news report that the federal government had “loaned” 1MDB RM970 million, calling it “standby credit” instead and that the figure is lower at RM950 million.

“The amount is not RM970 million [as reported by Singapore’s Business Times], but the sum we gave it (1MDB) in the form of standing credit is RM950 million, of which RM600 million has been used,” Ahmad Husni said in a reply to Pandan Member of Parliament (MP) Rafizi Ramli in Parliament yesterday.

He added that the company’s cash flow problems would be solved with an initial public offering (IPO), which had been postponed twice.

“The financial situation of 1MDB is not sustainable. If we look at its net worth and borrowings, its gearing stands at 17 times. If you go to any financial analyst or banker, they would say it is not sustainable, which is why 1MDB is in the process of carrying out an IPO to narrow its net gearing to three times,” Ahmad Husni said.

“The company (1MDB) is [also] facing problems with its cash flow. This (IPO) needs to be implemented as a short-term measure to refinance the existing debt. After the IPO, it will be smooth for 1MDB,” he added.

Ahmad Husni expects the IPO to be completed by September this year, which is expected to raise RM15 billion. On March 4 this year, 1MDB said it will resubmit its application to list its power arm, Edra Global Energy Bhd, to the Securities Commission Malaysia (SC).

On the remaining debt totalling some RM26 billion to be settled by 1MDB, Ahmad Husni said it will be done through monetising 1MDB’s land bank in Penang and Pulau Indah, Selangor, as well as future earnings from its iconic property projects namely the Tun Razak Exchange (TRX) and Bandar Malaysia, which have a gross development value (GDV) of RM40 billion and RM150 billion respectively.

He said the first phase of the TRX is expected to be completed in 2018, while works on Bandar Malaysia will commence by end-2016.

On the Auditor-General’s audit of the accounts of 1MDB, Ahmad Husni said: “Audit is an ongoing process. For instance, if an individual has a report lodged against him, this does not mean he can’t continue with his work, the same goes with 1MDB.

“1MDB is an ongoing concern, and continuous efforts need to be carried out to address its problem.” 

In a statement issued later yesterday, 1MDB president and group executive director Arul Kanda Kandasamy said the credit facility of up to RM950 million from the MoF is being provided as a loan on commercial terms.

“Having completed a strategic review of the business, 1MDB had announced on Feb 17, 2015 specific plans for each of its key assets.

“The MoF is fully supportive of these plans and, in its capacity as the 100% shareholder of 1MDB, has provided the company with a standby credit facility to help ensure that it is able to realise maximum value from these plans,” he said.

Arul said any funds drawn would be used for clearly defined purposes as agreed with the MoF.

“We are confident that with this facility from the shareholder, the company is well positioned to effect its previously announced plans, and we are now focused on implementing these to achieve our stated aim of maximising value for all stakeholders,” he added.

Meanwhile, both Rafizi and Petaling Jaya Utara MP Tony Pua said the RM950 million standby credit is tantamount to a bailout.

They believed that the RM600 million used by 1MDB was to service its RM42 billion loans.

“This is, on record, the first cash bailout given to 1MDB. This is contrary to Deputy Prime Minister Tan Sri Muhyiddin Yassin’s statement [on March 6] that public funds should not be used to bail out 1MDB,” Rafizi said.

Pua concurred, adding that this is only the beginning of many bailouts of 1MDB to come.

In a separate statement yesterday, Pua called on the MoF to disclose details of a joint venture between its wholly-owned unit SRC International Sdn Bhd and Mongolia-based Gobi Coal and Energy Ltd.

Expressing alarm over similarities between SRC International and the controversial 1MDB, Pua said SRC International’s investment was a matter of concern as it had secured a RM4 billion Islamic loan from Kumpulan Wang Persaraan (Diperbadankan) or KWAP guaranteed by the federal government.

The loan was disbursed in two tranches in August 2011 and March 2012.

The latest financial statement stated that SRC International made a loss of RM164.4 million and had total liabilities amounting to RM4.34 billion.

Interestingly, Pua said, the latest financial statements ended March 2014, were coincidentally audited by Deloitte Malaysia and were filed on Nov 5, 2014 to the Companies Commission of Malaysia, the same day as that of 1MDB’s after more than a month’s delay.

He questioned if SRC International’s 50:50 joint venture with Gobi Coal and Energy is another multibillion ringgit PetroSaudi-like scam waiting to be exposed.

In light of this, Rafizi said Pakatan Rakyat is mulling legal action against KWAP, the MoF and panel members in the investment unit for failing to carry out their duty to ensure the pension fund of the people is invested wisely.

 

This article first appeared in The Edge Financial Daily, on March 13, 2015.