This article first appeared in The Edge Financial Daily, on May 26, 2016.

KUALA LUMPUR: The government will not allow 1Malaysia Development Bhd (1MDB) to borrow any more money as its business model is unsustainable, said Deputy Finance Minister Datuk Johari Abdul Ghani.

Johari said the troubled state fund won’t be allowed to borrow from even public funds such as the Employees Provident Fund, Retirement Fund Inc and Pilgrimage Fund Board.

“We are responsible [for] any public funds. We will ensure 1MDB does not borrow from them,” he said in reply to a supplementary question in Parliament by PKR lawmaker Datuk Mansor Othman, who asked how the government would ensure that problems faced by 1MDB will not affect the people.

Johari said 1MDB has three problems that caused it to be not competitive. Firstly, he said, 1MDB has the wrong business model whereby it relies on huge debts to undertake big business projects. The business is unable to generate revenue quickly enough, resulting in a cash flow mismatch.

“Secondly, 1MDB has a weak management and thirdly, poor governance. This is stated in the report by the Public Accounts Committee,” he said.

Johari said 1MDB will be dissolved once its debts are settled, and that the fund is currently carrying out its rationalisation plan to divest its assets to pay off the debt.

The fund has accumulated debts totalling RM50 billion as at January, compared to its asset value of RM53 billion.

Speaking to reporters later, Johari said the transfer of assets by the Minister of Finance Inc (MoF Inc) is expected to be completed by the end of this month or middle of next month.

After that, the company would be in “run-off” and then dissolved after all debts are paid off.

“We cannot straightaway close 1MDB; it will be a run-off because of the liabilities,” he said.

“There will be no more 1MDB after [the debts are paid off]. Some of them [the staff] have already been terminated. They are already doing [retrenchment] slowly,” he said.

Asked if MoF Inc plans to assume the debts in order to dissolve 1MDB earlier, Johari merely referred to the RM5 billion sukuk it has guaranteed.

“[For] 1MDB debts, you have RM5 billion sukuk guaranteed by the government, whatever it is, we try to match the future revenue.

“A guarantee is a guarantee. If anything happens, the government has to stand behind the guarantee. That is our sovereignty’s credibility, we have to protect that.

“If you make mistake [it] doesn’t mean you have to destroy the country. We take note of the mistake and make sure it doesn’t recur. We cannot allow the country’s sovereignty to get affected,” he said.

On whether the bond would also be transferred to MoF Inc together with the assets, Johari said, “The bond cannot be transferred as it is issued under 1MDB. We cannot talk to the bondholders and transfer. That’s why we have a run-off. We keep the bond and hopefully the future assets will be able to cover.”

Finance Minister Datuk Seri Najib Razak earlier said that the government is not obligated to take over the US$3.5 billion bonds issued by 1MDB’s subsidiary and guaranteed by 1MDB and Abu Dhabi’s International Petroleum Investment Co.

On BSI Bank’s closure in Singapore, Johari cited 1MDB’s statement on Tuesday that it would not impact 1MDB’s assets.

“BSI has stopped operation, [this] means they cannot continue to do any banking activities and whatever assets they have for the clients do not belong to them. It belongs to the clients,” he said.

On claims that 1MDB is the cause of the bank’s closure, Johari said: “We don’t have much dealings with BSI anyway. BSI is a bank that also has problems with other country’s sovereign fund, so it is not just 1MDB.”