KUALA LUMPUR: 1Malaysia Development Bhd’s (1MDB) RM42 billion debts incur annual interest expenses of between RM2.4 billion and RM2.7 billion, Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah told Parliament yesterday.

“The amount (interest) will reduce when the debt is reduced, which is why we want to reduce it,” the minister replied to a question from Sepang Member of Parliament Mohamed Hanipa Maidin on the interest borne by the government in servicing 1MDB’s mounting debts.

He said this when winding up the debate on the 11th Malaysia Plan in Parliament yesterday.

Debt-laden 1MDB has been cash-strapped over the years as the strategic investment fund’s assets have not been able to generate enough operating profit to cover its interest payments based on its accounts for the financial year ended March 31, 2010 (FY10) to FY14.

As a result, 1MDB falls into a vicious circle of borrowing more money by issuing bonds abroad to service its debts. This partly explains how 1MDB chalked up over RM40 billion of debts, an amount that could build 10 klia2 in five years.

For FY14, for instance, 1MDB incurred RM2.4 billion in finance cost — 1.7 times the size of its gross profit of RM1.4 billion. Its cost of debt was 56.3% of its revenue of RM4.26 billion and 83.8% of its cost of sales of RM2.86 billion.

Similarly, its RM1.62 billion in finance cost for FY13 was 62.3% of 1MDB’s revenue of RM2.59 billion, and was bigger than its RM1.02 billion in gross profit and RM1.57 billion in cost of sales.

Currently, 1MDB is solely relying on its power assets, housed under Edra Energy Global Bhd, to generate profits. The fund’s prime land in the Tun Razak Exchange and Bandar Malaysia is not earning a single sen as yet, other than revaluation gains to boost its net profit.

Hence, 1MDB is selling the tract to ease its straggling cash flow to pay off the debts.

On calls for the Finance Ministry to give the green light to Deloitte to start auditing 1MDB’s financial accounts for FY15, Ahmad Husni said the government wants Deloitte to audit 1MDB, but for now the audit firm is busy auditing Edra.

“This one will be done later ... now we are doing Edra ... it is done in stages,” he said, adding that the government did not deliberately delay the audit of 1MDB.

He explained Deloitte is currently auditing Edra because the government wants to monetise it. He said the audit is expected to be completed in one month’s time.

On the weakening ringgit, several federal lawmakers want to know what the government is doing to ensure the ringgit does not further deteriorate.

To this, Ahmad Husni told Parliament that the ringgit’s slide was only due to the strengthening of the US dollar.