1MALAYSIA DEVELOPMENT BHD (1MDB) has asked for an extension to repay RM2 billion of debt due on Nov 30, sources say, raising further questions about its debt-servicing ability ahead of the planned mega IPO of its power assets early next year.
The RM2 billion is part of the RM5.5 billion debt taken through Powertek Investment Holdings Sdn Bhd in May this year to refinance a RM6.17 billion bridging loan taken in 2012 to fund the acquisition of its power assets. The remaining RM3.5 billion has been converted into 10-year paper that matures in August 2024.
Maybank Investment Bank Bhd and RHB Investment Bank are the arrangers and book-runners for both the RM2 billion and RM3.5 billion loans.
Maybank has 58.99% of the RM2 billion paper while RHB has 32.41%. The remaining lenders of the RM2 billion paper are Alliance Investment Bank Bhd with 4.06%, Malaysia Building Society Bhd (3.24%) and HwangDBS Investment Bank Bhd (1.29%), according to Bloomberg data.
The sovereign development fund has asked for another month to repay the RM2 billion loan, a source says, but this could not be officially confirmed at press time.
It is not immediately certain how much the extension will add to 1MDB’s debt-servicing cost, which amounted to RM4.81 billion in the past four financial years. The company had RM41.9 billion of debt as at March 31 this year.
Of the debt that 1MDB took subsequent to the end of its financial year was a US$975 million one-year loan in September this year from Deutsche Bank AG through 1MDB Energy Holdings Ltd.
If one excludes big-ticket paper gains — land revaluation surpluses and goodwill from overpayment for the power assets — which do not generate any cash flow from 1MDB’s assets, the company’s shareholders’ equity would show a deficit of RM4.7 billion for FY2014 ended March 31.
Its lack of operating cash flow and reliance on debt to fund acquisitions have caused its borrowings and total liabilities to climb faster than the growth in its asset base.
A spokesperson for 1MDB as well as the arrangers of the loan declined to comment.
Observers, however, say lenders would likely grant extensions to 1MDB should it ask for them. “A default won’t be allowed to happen as there will be broader consequences … RM2 billion is not that big a sum, relatively speaking, for a fund that is 100% backed by the government,” says an observer.
In any case, 1MDB has said that it will redeem from a Cayman Islands-based segregated portfolio company a remaining sum of US$1.23 billion (RM4.07 billion) and RM435.23 million in dividend by the end of the year. This may well go towards repaying the RM2 billion that is due, observers note.
According to notes accompanying 1MDB’s FY2014 accounts, the US$1.22 billion (RM4.03 billion) that it redeemed from the SPC “have been substantially utilised for the purpose of interest payment, working capital and payments to Aabar [Investments PJS] as refundable deposits pursuant to a settlement agreement to extinguish the option agreements”.
Maybank and RHB are also the arrangers and major holders of the remaining RM3.5 billion of debt converted into 10-year paper.
This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.