AK to the rescue of 1MDB

-A +A

KUALA LUMPUR: Businessman T Ananda Krishnan (AK) is understood to have firmed up an agreement to loan beleaguered 1Malaysia Development Bhd (1MDB) as much as RM2 billion to help the strategic investment fund settle a debt obligation to Malayan Banking Bhd (Maybank) and RHB Bank Bhd due at the end of this month, sources say.

It is understood that the loan, however, is merely an interim measure.

“It [the loan] is more for 1MDB to clear this obstacle — the two banks — than anything else. The two [AK and 1MDB] are still looking at how to resolve the issue,” the source said.

1MDB and AK have been in a quandary over how to settle a RM2 billion debt, slated for repayment in November last year, which was guaranteed by the billionaire, when the strategic investment fund acquired his power assets in March 2012.

1MDB has already been given two one-month extensions on the RM2 billion facility. The facility, meanwhile, is part of a larger debt restructuring exercise undertaken by 1MDB on a RM6.17 billion bridging loan that was due to be settled last year. 

The debts were refinanced into a RM3.5 billion 10-year term loan secured against Powertek Investment Holdings Sdn Bhd (PIH), and a RM2 billion facility due in Nov 30 last year. The remainder owed has been repaid with interest.

The RM2 billion loan was secured after a commitment by billionaire AK to inject the same sum into PIH, which would enable PIH to pay the lenders.

But this route ran into a snag because a RM2 billion injection would have given AK a majority stake in PIH, based on today’s valuation. In other words, 1MDB would lose control of PIH, a prospect that was not politically tenable.

Sources said as the Maybank/RHB Bank consortium waited to be paid, both 1MDB and advisers to AK have been looking at various options to break the deadlock and finally opted for a plain loan from AK to 1MDB.

“It’s not yet a done deal as the terms of the loan have to be agreed on but it looks like the only option now,” said a source. “And even then, this is an interim solution so that the banks get paid.”

1MDB, which is wholly owned by the Ministry of Finance, racked up after-tax losses of RM665.4 million from RM4.26 billion in revenue for its financial year ended March 2014 (FY14). 

The bleeding would have been more severe had it not been for a re-valuation gain of RM896.8 million on its property assets.

According to the company’s annual report for FY14, the sovereign wealth fund’s long-term borrowings had ballooned to RM33.5 billion, up about RM7.2 billion or some 27% from RM26.3 billion in FY13. 1MDB had short-term borrowings of RM8.3 billion.

As at end-March last year, 1MDB had cash and bank balances of RM3.8 billion, down 42% from RM6.7 billion in FY13. This dip in its cash pile had been used to pay high interest charges and existing borrowings. For the year ended March 2014, 1MDB paid RM2.4 billion in finance costs.

 

This article first appeared in The Edge Financial Daily, on January 30, 2015.