KUALA LUMPUR: Prime Minister Datuk Seri Najib Razak must use his Budget 2015 speech this Friday to explain the impact and implications of 1Malaysia Development Bhd’s (1MDB) RM36 billion debt on government finances, said the DAP.

The party’s national publicity secretary Tony Pua said any announcement by the prime minister without addressing the extravagance of 1MDB and its RM36 billion debt would be “missing the massive elephant in the room”.

He said the financial community is getting increasingly worried and restless with the possibility of IMDB, a body fully owned by the finance ministry, collapsing due to its debt.

“[If that happens] Najib will go down in history as the prime minister who will possibly bankrupt the Malaysian government,” he said in a statement yesterday.

Calling the fund Najib’s “pet project”, Pua said: “1MDB is able to single-handedly bring down the Malaysian financial system.”

He said the government’s “desperation” to award the company lucrative contracts and cut-price prime property assets could not be more obvious.

“The RM36 billion direct and indirect contingent liabilities for the government cast a deep and dark shadow over any possible improvements in our budget deficit, which Najib will announce [on Friday].”

Over the last five years, 1MDB has accumulated RM36 billion in debt due to explicit and implicit guarantees by the federal government.

The debt was due and required immediate payment, said Pua, who is also Petaling Jaya Utara MP.

He cited a business news portal’s report that 1MDB is planning to raise another RM8.4 billion in sukuk to finance its activities this year.

At the same time, the board was also busy rescheduling its short-term debts to avoid immediate default throughout the past year, he said.

Pua also said Singapore daily The Business Times reported that 1MDB’s debt rescheduling came at an expensive price of 2.5% interest above the annualised cost of funds, on top of RM20 million to RM30 million in upfront fees.

The report also stated the real threat of default had “ruffled the feathers of Malaysia’s top banking circles as well as the country’s banking regulator, Bank Negara Malaysia”.

“The financial distress in 1MDB is so serious that the government has been forced to renege on its promises to the market of fair and open tenders for independent power producer (IPP) contracts to ensure the lowest cost of electricity supply to Tenaga Nasional Bhd.

“The government has been awarded an IPP contract to 1MDB, despite the latter not having bid the lowest price.

“Subsequently, the government decided to eschew the open tender process altogether to award 1MDB a 50mw solar power plant in March and another 2,400mw gas-fired power plant in August this year,” Pua said.

He said the “shocking concern” is that the 2,400mw power plant, which had been awarded via direct negotiations, will not be needed until 2021.

He described what was done concerning 1MDB as “clearly expensive bailout exercises” by the government to enable the board to get enough revenue to list its power plant projects.

“1MDB desperately needs to do so in order to raise urgent funds to repay its burgeoning debt.

“This is especially since 1MDB overpaid for expiring IPP companies in 2012. That resulted in a massive impairment of RM2.7 billion recorded in its financial statements ended March 2013.”

Pua also urged Najib to shed light on the liquid assets worth RM7.18 billion 1MDB had invested offshore in the Cayman Islands.

He said the investment generated a “pitiful” 5.76% in returns in 2013, despite the fact that the cost of funds for 1MDB was in excess of 6%.

“The prime minister must provide a convincing answer as to why funds residing in well-known secretive tax havens have not been repatriated for the funding of 1MDB’s local projects.”

Pua also called on Najib to give details and explanations on the 238 acres (96ha) of land 1MDB had purchased in Penang, where the government had promised to build 9,999 units of low-cost and affordable housing. The promise was made six days before the May 5 general election last year.

“Najib must provide a detailed road map and explanation for 1MDB’s splurge of RM1.38 billion for the land in Penang.

“For more than a year now, 1MDB has done absolutely nothing with the acquisition which was paid for with debt raised from financial institutions.”

Pua echoed former prime minister Tun Dr Mahathir Mohamad’s criticism of 1MBD.

Dr Mahathir had said: “The money for 1MDB is not from the country’s surplus. It is a debt. Billions of ringgit in debt that is added to the already high national debt.

“The national debt must be paid. If not, we will be bankrupt like Argentina. A country that has been facing a deficit every year could not possibly pay off a debt this big.”

1MDB has been in the limelight since Dr Mahathir openly criticised the government-owned investment company early last month.

Dr Mahathir slammed 1MDB for its heavy debts and for spending billions of ringgit to buy power plants from conglomerate Genting Bhd and Malaysian tycoon T Ananda Krishnan, paying above the market price for them. — The Malaysian Insider


This article first appeared in The Edge Financial Daily, on October 8, 2014.