This article first appeared in The Edge Malaysia Weekly on January 8, 2018 - January 14, 2018

THE amount of government-guaranteed debt has more than tripled in less than a decade — and this only takes into account loans that have direct government guarantees.

From RM66.42 billion in 2008, the figure reached RM187.23 billion or 15.2% of gross domestic product in 2016. In the first nine months of last year, it rose further to RM226.876 billion.

According to an article in the Economic Report 2017/18, the main objective of government guarantees is to facilitate the risk allocation in infrastructure spending and propel the country to achieve advanced and high-income status. These guarantees are given to enable an entity to undertake development projects, which are mainly infrastructure and social in nature and of national and strategic importance, it says.

It is worth noting that about 42% of the guarantees have been given to infrastructure-related projects while services guarantees constitute 24.4%.

According to The Edge’s compilation of federal government loan guarantees between 2008 and 2016, the largest portion was for the National Higher Education Fund Corporation, or better known as PTPTN, which was established in 1997. From RM11 billion in 2008, the amount of government-guaranteed debt for the statutory body quadrupled to RM40.35 billion in 2016.

The next largest issuer is DanaInfra Nasional Bhd, whose government-guaranteed loans rose from RM2.4 billion in 2012 to RM29.7 billion in 2016.

Wholly owned by the Ministry of Finance, DanaInfra undertakes fundraising exercises for national infrastructure projects. Its current key project is the mass rapid transit network. According to its website, it has raised RM46 billion in sukuk to date for the project.

Third in line is Prasarana Malaysia Bhd, which had a government-guaranteed debt of RM18.7 billion in 2016, up from RM7.1 billion in 2008. Prasarana is the asset owner and operator of the light rail transit network, monorail and Rapid bus services.

Other well-known names on the list are Khazanah Nasional Bhd, with RM18 billion in 2016, up from RM10.4 billion in 2008; and Projek Lebuhraya Usahasama Bhd, whose guaranteed loans remained unchanged at RM11 billion from 2012 to 2016.

There are also several companies owned by Minister of Finance Inc among the 34 recipients of government-guaranteed loans between 2008 and 2016, including 1Malaysia Development Bhd (1MDB), with only RM5 billion directly guaranteed debt between 2012 and 2016. Those familiar with 1MDB would know that it has at least another US$3 billion in debt with “letters of guarantee” from the government — but this does not fall under the list.

Jambatan Kedua Sdn Bhd, however, saw its guaranteed loans balloon from RM719 million in 2009 to RM7.39 billion in 2016. According to its website, the concessionaire, which built, and now manages and maintains Penang’s second bridge, is wholly owned by MoF. The bridge, which opened to motorists in March 2014, is reported to have cost RM4.5 billion to build.

According to its audited financials, the company incurred a net loss of RM316 million in the year ended Dec 31, 2016. However, the loss has declined by RM190 million from the previous year. Its total liabilities stood at RM7.64 billion and total assets, at RM7.2 billion, filings show.

Meanwhile, Govco Holdings Bhd, which had an outstanding government guarantee of RM4.6 billion as at end-2016, is also wholly owned by MoF. In 2012, the amount stood at RM3 billion.

An investment holding company, Govco is the issuer of RM3 billion in asset-backed sukuk and has certain investments in unquoted Khazanah preference shares. It also holds RM1.2 billion worth of preference shares in Proton Holdings Bhd. For the financial year ended June 30, 2016, it posted a net profit of RM90.76 million on the back of RM157.96 million in revenue.

Other lesser-known names include Turus Pesawat Sdn Bhd (RM5.3 billion) and Assets Global Network Sdn Bhd (RM658 million), which buy planes and buildings and lease them to Malaysia Airlines Bhd.

Turus Pesawat’s latest available financial statement for the year ended June 30, 2014, shows a profit after tax of RM2.94 million. Meanwhile, Assets Global Network posted a profit of RM14.97 million in the financial year ended Dec 31, 2014.

Another lesser-known company is Sentuhan Budiman Sdn Bhd, which was incorporated in October 2015. Its financials are not known but the amount of government-guaranteed loans it was carrying was relatively small, at RM650 million, in 2016, up from RM400 million previously.

While the rate of growth of the outstanding government guarantees had slowed to 4.3% between 2014 and 2016 compared with 14% in 2012 to 2014, as pointed out by the Economic Report, the fact remains that the outstanding direct guarantee of RM187.23 billion as at end-2016 is a sizeable sum and a contingent liability that has to be closely monitored.

Already, the rise in outstanding federal government guaranteed debt in the first nine months of 2017 is far greater than the year-on-year growth for the whole of 2016. It remains to be seen how many new issuers of government-guaranteed debt will emerge in 2017 and if more details on the nature of these guarantees and how the country benefits from them will be provided.  

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