KUALA LUMPUR (June 3): 1MDB, wholly-owned by the government, said today its RM37 billion debt does not pose “any significant risk to the sovereign’s rating and stability of Malaysia”.

“There is sufficient asset cover by 1MDB’s group assets.  The group’s total assets stood at RM46 billion at the financial year end of March 2013, compared to total debt of RM37 billion,” IMDB said in a statement.

This statement by 1MDB was made in response to a Reuter report yesterday that said “surging debt at Malaysia's shadowy fund (1MDB) emerges as new sovereign risk”.
This story, which carried comments from analysts from Fitch Ratings and Moody’s, was highlighted in several newspapers today.

But 1MDB said: “As a limited liability company, 1MDB poses limited liability risks to the government as its shareholder.

“The government guarantees RM5.8 billion of the group’s total loan, on which 1MDB has significant interest cover. 1MDB has never missed any payment schedule.”

1MDB, set up by the administration under Prime Minister Datuk Seri Najib Razak, is meant to be a “strategic development company” to help transform Malaysia into a thriving economy.

Defending its position further, 1MDB said all its debts are backed by operational assets, “with healthy cash flows and strong growth potential beyond their finite life.”

“The group’s cash assets are currently being invested in both energy and real estate sectors for investment returns. This will in turn be utilized to cover debt and to return cash to shareholders,” it said.

It added the recent restructuring exercise has enabled 1MDB to reduce its RM6.17 billion bridging loan to RM5.5 billion through internally generated funds. The bridging loan was taken up two years ago to finance the acquisitions of Powertek Energy Sdn Bhd.

“Now in its fifth year of operations, 1MDB expects to see strong contributions from both its energy and real estate arms, which are expected to yield investment returns higher than their cost of capital,” said 1MDB in the statement.

Under its energy stable, 1MDB owns 16 power and desalination plants in six countries. With the addition of Jimah Energy Ventures, 1MDB expects the revenue from its energy arm to further contribute to the company’s bottom line.

As the master developer for Tun Razak Exchange (TRX) and the 500-acre urban redevelopment project Bandar Malaysia, 1MDB said 1MDB Real Estate “is in talks with several investors for partnership opportunities and outright plot sales for Stage 1 of TRX”.

Investment deals are expected to be announced in the near future, said the statement.