This article first appeared in The Edge Malaysia Weekly, on January 11 - 17, 2016.

I’M trying not to smile,” says Arul Kanda Kandasamy, grinning all the while. He tries once more to give the camera a serious corporate look, but to no avail. It is a smile that comes naturally to him, but one that isn’t too popular among his critics, who find it in poor taste given that 1MDB has created much heartache and headache for the country in the past two years.

But he isn’t one to bow to critics, and if ever there was a time to smile, it is now.  Having completed the challenging rationalisation plan that will take 1MDB out of crisis mode, he is giving an interview. It is his second with The Edge — the first was exactly a year ago when he assumed the post of CEO to help rationalise (critics call it “bail out”) the troubled company.

Standing in front of a wall of unmoving wayang kulit figures in 1MDB’s offices, Arul, who will be 40 this year, tries out a few poses for the camera.

On the far wall is a print of Malaysia’s first prime minister Tunku Abdul Rahman in sepia tone. He overlooks a 1MDB logo with one arm iconically raised during that historic moment when he proclaimed “Merdeka!”. Just around the corner is a large metal plaque with Prime Minister Datuk Seri Najib Razak’s signature on it, commemorating the opening of the offices in 2010.

As he prepares several poses for the photographer, Arul adjusts his emerald tie with thin 

diagonal red stripes. It is the unmistakable tie of the Royal Military College (RMC) and it isn’t on display by accident.

“RMC was where I was taught how to take on fights like this,” says Arul proudly, referring to his challenging one-year stint at — in his words — Malaysia’s most investigated company.

Coincidentally, 1MDB’s first CEO Datuk Shahrol Halmi is also an alumni of RMC — a revered institution that apparently breeds leaders who will leave no man behind.

“We were taught to stick together. If one of us did something, no one would tell. We all took the punishment,” Arul reminisces.

He recounts the time when the 500-strong student body was forced to do knuckle push-ups under the blazing midday sun by their commandant, who was seeking out a particular mischief-maker.

“The pavement was burning hot, our knuckles were bleeding, and some people were even passing out. But we stuck together and took the punishment. And he (the commandant) respected that,” says Arul.

He smiles the Arul smile once again as the camera’s flash goes off. 

Here is an excerpt of the interview:

The Edge: How has the past one year been?

Arul Kanda Kandasamy: [Laughs] Tiring, in one word. But I think in terms of where we were then and where we are today, there is a massive difference. That sense of achievement is something the whole team is happy with.

Did you expect your job to be this difficult?

Not at all. I was looking at it very much from the restructuring perspective, which is my background and my expertise, which I built up during the financial crisis. I looked at it purely from that perspective without fully appreciating the politics involved, both within the government and outside the government, as well as the investigations that came in from March onwards. That was the big difference between what I signed up for and what I ended up having to deal with.

Now you have sold the power assets, parcels of land, is it mission completed?

When I first came in, I wanted to get a sense of the issues and challenges and what needed to be done. We started off with a strategic review because we wanted to go through thoroughly and understand what caused the challenges. That was a diagnostic check of where things were and how the company was. In the meantime, we were negotiating for the RM2 billion syndicated loan which needed to be repaid by mid-February.

This is the one by Maybank (and some other local banks).

Yes. So, concurrently, we were juggling a few things. What the strategic review showed was that the assets of the operating companies were very good and very strong. And there was a surplus of assets over liabilities. The issue was the cash flow mismatch. That was very clear from the review. Essentially, short-term interest payments and short-term principal repayments were exactly the opposite of where the company should have been in terms of its asset and business profile which had more long-term gestation.

This was the key problem. Was it something (1MDB) could not see?

If you look at the (1MDB) financial statements for example, you will see RM2 billion in cash. However, a lot of that cash is restricted cash under the various project financings that the company entered into for its power assets, for example.

On the face of it, you will not see the cash flow mismatch. But if you lay it out on when interest has to be paid and when anticipated cash flows come into the firm, that’s when, in November 2014, the challenges first arose. The company was supposed to do an IPO, but that didn’t happen.

And there was a repayment of RM2 billion due, and traditionally, what the company would have done was to refinance or raise more debt to meet that short-term requirement.

But because the IPO didn’t happen, given the loss of confidence, and then, obviously, the attacks both by certain segments of the media and the opposition. So the traditional method didn’t work anymore. Hence, more radical steps needed to be implemented.

You are saying the IPO couldn’t happen because of the attacks?

I believe that was one element of it. For an IPO to happen, you need confidence. Of course, there were other elements. Project 3B at the time was not fully financed, so to inject it into an IPO structure would not have been too beneficial.

But for a company that uses debt to run its business and for a company that relies on asset sales to repay debt, which was the business model from day one, confidence is the single most important factor.

If confidence hadn’t been undermined, even with the cash flow mismatch, you would have been able to refinance your debts?

Absolutely. And I keep going back to this — had the IPO happened as planned, 1MDB would not be in the news at all.

One other item I forgot to mention was the first-ever loss by the company, which happened around the same time.

There were three things that caused the loss of confidence. The first was the first ever loss of RM665 million. Then you had the delayed IPO, or the IPO that never happened. And then there was a loan that was due for which there was no immediate solution. Obviously, it was supposed to have been repaid through the IPO.

It was these three biggest factors that resulted in the loss of confidence.

The fact that the financials were not published on time could have contributed quite a bit, wouldn’t it?

I would say that is a much-smaller reason. Frankly, financials are historical, they are backward looking.

What about the changing of auditors?

Let’s look at that objectively. The first auditors were Ernst & Young, under the TIA (Terengganu Investment Authority), which at the time, was owned by the government of Terengganu. Eventually that shareholding moved to MoF (Ministry of Finance). Therefore, that first change of auditor was due to the change in shareholder.

That is not unusual. Typically, when a new shareholder comes in, they will change the auditor.

Then, 1MDB had KPMG for three financial statements and Deloitte for two financial statements. It is not like we changed auditors immediately, there was some time. Secondly, it is not like we changed from KPMG to Ali, Bala and Chong. We moved from KPMG to Deloitte, which is actually (one of) the largest accounting firms in the world.

And for very good reason, because at the time, 1MDB purchased the power assets. And we had all the foreign assets, and we needed a firm that could give us a good enough proposition to audit those accounts. But don’t take my word for it. Look at the difference in the notes to the accounts between 2012 and 2013, you will see there is a lot more details because Deloitte committed to 15 audit partners, not only locally, but also regionally.

So, those factors to me are not so major. What were major factors to me was the loss of confidence, the delayed IPO and the debt that has became due and the inability to refinance the debt. That is the cause.

If 1MDB didn’t raise those debts, those three problems wouldn’t be problems at all. Did 1MDB need to raise so much debts?

First, let us all agree that hindsight is 20/20. Decisions and choices need to be looked at in the context at that point in time.

Secondly, remember that we are looking at a six-year period. Your question is trying to compress that six-year period into a two to three-minute discussion, which removes a lot of the context.

Now, a very important point is that the debt in 1MDB — RM42 billion as of FY2014 — was not there from day one. The debt started originally with the RM5 billion sukuk. And each time 1MDB acquired new assets, it took on debt to do so.

The single-largest jump in the debt profile took place in 2012 when 1MDB acquired the power assets — new debts and debt that was inherited.

If you look at the graph of asset and debt growth, it is perfectly correlated over that five-year period. This is something that a lot of people do not understand. The debt came about because of the asset acquisition.

The debt grew over time.

In relation to what was done to the company. If you look at all of the three major businesses — Edra (Energy Global Bhd), TRX (Tun Razak Exchange) and Bandar Malaysia — each of these are massive standalone companies by any yardstick.

We just did a sale and purchase of equity in the Bandar Malaysia project, which values the land at RM12.35 billion. If you look at the land sales we have done this year in TRX, over a billion ringgit of land has been sold in that development. If you look at Edra, the equity value plus the debt assumed is a RM17 billion transaction.

Those companies are standalone companies in their own right and would rank very high up if they were listed on Bursa Malaysia.

To me, if anything, it is the complexity that comes with undertaking such massive projects in a relatively short span of time. That to me, is what has to be managed and executed, not to end up in the challenges that the company faced.

But remember that the confidence was always very high. But to do that, and to acquire more debt and to acquire more assets was possible because of the confidence.

If you look at the global financial crisis, why did banks like Bear Sterns or Lehman Brothers or Merrill Lynch, why did General Motors have to be bailed out by the US government?

They were still making the same products, they were still serving the same customers. What changed was a loss of confidence in the ability of the market to provide liquidity to these firms.

When the taps ran dry, they were not able to refinance short-term debt in the case of GM. They were not able to run to counter parties to do the deals. That is what caused the crisis in the companies.

If you look at the resolution of the companies today, the loss to the shareholder or the taxpayer is minimal. In fact, in most cases, it is a profit.

But at that point when confidence disappears, it is difficult for companies that rely on debt to do business.

1MDB is similar, in that it relied on debt to do its business. That debt was available when confidence was there. But the moment confidence left, it was no longer able to sustain the debt.

Let’s just go back, before we dwell on the restructuring. With 2020 hindsight, would you say that 1MDB took on too much risk at an early stage? Was this the right business model?

To me, the use of debt is not wrong. In your day-to-day life, when you buy a house, it is debt funded. When you buy a car, very similar. Debt creates a certain discipline that you have to repay the debt and therefore run your business in a particular way.

The use of debt in a government-owned company also frees up funds that would otherwise have to be injected as equity. It can be used for development projects and so on and so forth.

A lot of firms use debt. Banks are a good example, they are highly leveraged entities. Where it becomes a concern is where the maturity of the debt and the cash flow of the company don’t match.

Even in that scenario, many development companies will tend to refinance debt so you don’t necessarily anticipate until the project is finished. And if you look at 1MDB, that is what happened. If you look through the financial statements over time, debts were taken, they were repaid, new debts were taken on, as the company grew and the business profile increased.

But clearly you need confidence to do this. And this confidence comes in many ways. For example, you doing what you said you would do. Achieving a plan as envisaged. It has to do with market environments in general. It has got to do with achieving certain criteria and guidelines. When that doesn’t happen, and you can debate the reasons for that, then you have these problems. I am not trying to simplify the issue.

Rather, what I am saying, the model to me is fine. What caused the cash flow mismatch was the inability to hit the target which was the IPO.

Did 1MDB take unnecessary risks? No doubt a certain amount of debt is good, but did 1MDB take on too much debt to the point that the risk became too high?

I disagree. If you look at the debt profile, by and large, over 80% of the debt is long term. The RM5 billion sukuk, the US$3 billion GIL (Global Investments Ltd) bonds, the Ipic guaranteed bond. The short-term debt was linked to the energy asset acquisition. And that is very normal.

When you acquire a company in an M&A scenario, you take bridge financing to bridge the period till you get to the takeout in this case, the IPO.

So the decisions were not flawed?

Not at all. If you look at the debt profile, most of it was long term. The short-term debt was taken in a very usual context. You take acquisition finance.

So you are saying only one thing went wrong — the IPO didn’t take off?

In terms of the cash flow mismatch, yes. Otherwise the asset profile matches the debt profile. For example, if you look at the Bandar Malaysia sukuk. It is for a time horizon of up to 10 years, matching the development of Bandar Malaysia. If you look at the nature of the sukuk, it is almost zero coupon — 0.38%.

You don’t have a cash yield to pay, but that yield is built into the principal and is paid at maturity. That is the absolute perfect instrument for that requirement.

If you look at the bulk of Edra’s debt, it is long-term project financing which matches the PPAs coming from the company.

If you look at the GIL bonds or the Ipic guaranteed bonds, they are bullet 10 years with interest payments in between.

In that perspective, it was correctly done. But circumstances change.

Again, a plan was implemented very quickly. In November, the problems came to a head. Posted a loss, IPO was postponed, RM2 billion was due to a consortium of banks.

By mid-December, I was interviewed and by January, I was doing my job. To me, credit needs to be given to the shareholder — Ministry of Finance — for immediately taking steps to rectify the issue.

If you look at February, when the Sarawak Report articles came out, when The Edge’s articles came out, by March 4, the cabinet had agreed to the Auditor General conducting a review of the accounts and for the results to be presented to the PAC, a panel which contained some of our biggest critics. Again, the government took steps immediately, showing that this is a business issue and it has no other angle to it.

The IPO was supposed to have happened earlier. 1MDB originally had a bridging loan of RM6.17 billion initially but it had to be refinanced when the IPO had to be postponed. Wouldn’t the problem with the cash flow have been detected earlier since everything hinges on the IPO?

In 2012, that was the plan. When the acquisition of Powertek and KLPP happened, they were planning for a November 2013 IPO. But something very big happened in between — the acquisition of Jimah Energy Ventures in early 2013. That was a big addition to the portfolio. There was a requirement to integrate these three big companies, companies that could have been listed on their own.

To integrate these companies takes time. And that is why the initial target was not met because you need to rationalise and create that common platform. The loan was originally in 2012, when it was just Powertek. The Jimah addition happened later and that is why the IPO was moved to 2014.

Would you be able to share a ballpark figure of what 1MDB’s debts will look like come June 2016?

I am hesitant to answer that because it depends on what we do with the debt.

The value of TRX matches the RM5 billion sukuk, and the value of Bandar Malaysia matches the US$3 billion GIL bonds. There could be a situation where we keep the debt on a balance sheets but match the debt to the future cash flow of those assets.

For example, Ipic might rather we keep the debt on our balance sheet. It is currently contingent on their balance sheet. If they take it onto their balance sheet, it gets counted. They may say, ‘Please keep it on your balance sheet (1MDB’s), we will service it’, as they are doing now. Legally we are there, but parts are still moving ... it’s just physically how we will do it.

When can we expect the FY2015 accounts?

1MDB’s holdco accounts are consolidated accounts. To prepare those accounts, you need the accounts of all the subsidiaries to be done. We have done it for Edra, and we have almost done it for the real estate. Now it is in the process of being signed off by the auditors. When that happens, we go up one level to the intermediate holding companies.

The closer you get to the 1MDB level, the more difficult it becomes for us. If you recall, on July 8, our premises were raided and all our documents were taken away — including our ledgers, our journal entries, our payment vouchers, our legal agreements, etc.

An auditor needs to look at all that in order to audit the accounts. It’s not preparation of accounts. Preparations are management’s responsibility. The auditor’s job is to check these accounts.

We have an extension till March 31, 2016, but frankly we need all our documents back before the auditors can audit what is inside the accounts. It is physically not possible.

Will you apply for another extension?

If we get the documents back in time, we won’t need an extension. But that looks unlikely.
 

There is this perception that the only thing 1MDB has done is strip the assets and sell them to foreigners and we are left with nothing.

I think that is completely unfair. The asset acquisition went in tandem with the debt acquisition. For example, if you buy a house — RM100,000 house with a RM90,000 loan. You then buy a second, third, fourth and fifth house. You now have RM500,000 of houses and RM450,000 of debt.

Let’s say you cannot rent out those houses, and you cannot pay the mortgage. You either get a new infusion of cash to pay the mortgage or reduce the loans or you have to sell the houses.

That is where 1MDB is today.

1MDB took on debts to buy assets. Now some of those debts have become due. And we are in a position where it is difficult for the shareholder to add additional equity. Therefore the only option is to dispose of those assets in order to reduce debt.

You can’t have your cake and eat it. You can’t say, ‘solve the 1MDB problem’, and at the same time, ‘you can’t sell assets’.

One point that people are not comfortable with — the asset sales may have helped bring down the debt but what we have in return is foreign ownership of certain prime assets. Certain parties think power assets should be owned by locals, for example. As for the two prime pieces of land, they have a lot of future value and it would be better if they were owned by the government. Some would also say, if 1MDB was not financially distressed, it would not have to hold a fire sale to foreigners. What is your opinion on that?

Let me address your last point first. There was no fire sale. We have got full if not higher value for our assets than what the market anticipated. The land sales in TRX are proof of that, we set new benchmarks. For Edra, we sold it at almost full value, in terms of equity value on our books. Same thing for Bandar Malaysia, I don’t think anyone believed me when I said RM11 billion to RM12 billion, but we did it for RM12.35 billion in terms of land value.

Secondly, both processes were run through an international tender. Full opportunity was given to local and foreign investors to take place. We had independent advisers running both processes and Maybank. We even ran a process to choose our advisers.

In terms of Edra, it was never our asset to start with. It belonged to the private sector. Anyway, foreigners are allowed to own up to 49% of power.

If you look at the fuel supply, it is only from TNB and Petronas, so we have control. If you look at transmission and distribution, it is 100% controlled by TNB. PPAs are also 100%-controlled by TNB. As for generation, it has been allowed to be done by the private sector.

We also have a very strict regulatory regime, overseen by KETTHA and the Energy Commission. If you look at countries with a very similar regime, like Singapore, they allow 100% foreign ownership. In fact 80% of Singapore’s power plants are owned by foreigners. In fact, the largest is owned by a Malaysian company — YTL. If you look at the UK and Australia, they allow 100% foreign ownership.

So foreign ownership in itself is acceptable if you control the input and output and there is a good regulatory regime.

A lot of people don’t know this, but under the PPAs, TNB has step-in rights if the power plant operator does not perform. We are protected in so many ways. Factually and analytically, there is no issue with foreign entities owning the power plants.

In terms of Bandar Malaysia, we own 40%. Iskandar Waterfront Holdings owns 60% of the consortium. In turn, Kumpulan Prasarana Rakyat Johor owns 40% and Credence Resources controls 60% of IWH. CREC only controls 40% of the consortium, which is an effective stake of 24%. Between KPRJ and 1MDB, the federal and state governments control 54%.

When you look at any other assets in the country, that ownership is very small. And it represents FDI (foreign direct investment). And FDI is important to us.

On the one hand, we need FDI and the opposition complains when there is insufficient FDI. On the other hand, when FDI comes in a controlled manner, when they are paying top dollar through a tender process, why is there any cause to complain?

How do you make money from land? You sell it.

Let’s look at it this way. You set up a company in 2012. You go and get all these assets. And a few years down the road, you sell everything?

Like I said, you have to choose. Do you want the debt or the assets? You can’t have both. The debt came about with the assets. The mortgage example I gave earlier is the best example I can give.

After selling off the assets, do you think confidence is back? There are still a lot of naysayers out there.

I think those are two different topics, to be honest. If you look at the naysayers, if you compare where they started with — in January, February and March — I think today, you will see a big difference.

Where we started off was (allegations of) corruption, criminal breach of trust, etc. And whilst I do not want to prejudice ongoing investigations, the view I have always had is that this is just a business issue.

I think now, most of the critics of the company, they are not criticising the basis of the company or how things were done, as opposed to criminal allegations.

That is an important point that I would like to clarify.

What I would have liked is to have a timeframe to stabilise the company, in order to maximise value for the shareholder.

Again, if you look back at the global financial crisis, the immediate thing that the government did was to step in and provide funding in order to stabilise the company and then have an orderly resolution process or the disposal of the assets, either through the government or the private sector.

If you look at all the enquiries and the investigations, they were conducted after stabilisation had been achieved. In 1MDB, we had a very different challenge.

Investigations started first, and very early on, which significantly affected our ability to maximise value from the resolution process.

You will notice a significant difference between the strategic review and the rationalisation plan, which was announced in June. If you look back at those two announcements, you will see a clear shift. In February, we wanted to continue running the business of the company, albeit in a more independent fashion. Like what we did with Edra, we wanted to do with TRX and Bandar Malaysia.

But subsequent to that, the Sarawak Report articles came out. The Edge articles came out every week. The government then ordered the Auditor General to look into 1MDB and report to the PAC. The subsequent investigations commenced, and frankly that left us with very few options.

The best thing would have been for the government to inject capital and stabilise the company. But given the political considerations at the time, it was not possible. The preference was for the company to resolve its own problems.

With a RM950 million loan from the government, we had to make do. So we had to embark on a disposal process. We signed a joint venture with Land Lease in March. We sold major plots of land in TRX, subsequently we had to announce the sale of Bandar Malaysia and Edra.

Are you unhappy with the outcome?

Not at all. Given the circumstances that we faced — the political circumstances, the nature of the discourse on the company, the media criticism — to me, what we have achieved is the best we could have done.

What about the RM2 billion loan from Ananda Krishnan?

We never took any loan from Ananda Krishnan. What we had was a loan arranged by Tanjong, which was originally their equity obligation. They had an obligation to inject RM2 billion of equity if called upon. But we agreed, instead of calling on the equity to convert it into a loan.

Tan Sri Rafidah Aziz commented that 1MDB has not contributed to the country.

I would love the opportunity to meet Tan Sri Rafidah Aziz and give her my five cents on that. First of all, the consolidation of the three independent IPPs (independent power producers), which created a platform that was then able to bid for new power projects.

By becoming a competitor in the market, it resulted in lower PPA tariffs. A one sen reduction over a life of a 20-year PPA will result in a RM2.9 billion reduction in cost.

The fact that we bid also lowered the price for other bidding processes. We had four projects after 1MDB came through. If that isn’t a benefit to the rakyat, I don’t know what is.

Secondly, if you look at TRX, for example, while it was sold to 1MDB at a nominal price, 1MDB took on RM3 billion in infrastructure. No private developer will do that. You only need to look at the congestion around KLCC, Mid Valley and KL Sentral to understand what I am talking about.

Today, you can see the new benchmark for real estate prices in KL is TRX. And that has benefited all other landowners around KL.

On top of that, we have brought in FDI. Mulia Group spent RM665 million on purchasing a plot of land in TRX. Mulia is one of the largest property owners in Indonesia. They have built buildings in Thailand and so forth. There are so many other examples I can give you to prove this point — that 1MDB did what it set out to do — to be a catalyst, to deliver these projects for the government and to bring in foreign direct investment.

What if those assets — TRX and Bandar Malaysia — had not been injected into 1MDB? Or if 1MDB had not incurred so much debt that it needed to sell the assets to pay it off? The money would have gone to the government’s coffers.

It is a zero-sum game. You aren’t talking about the other side of the equation. The fact that 1MDB took on debt frees up the government to do other things with its money.

For example, in Bandar Malaysia, 1MDB has the obligation to build new bases and relocate the existing facilities. That project totals RM2.7 billion, for which 1MDB took on RM1.6 billion of debt via the Bandar Malaysia sukuk. The debt comes with the asset. You can’t have one without the other. Your argument doesn’t make sense.

But the government already owned the assets.

Sure. But to develop the assets, the government would have had to find RM2.7 billion for Bandar Malaysia. The money would have had to come from somewhere.

On a scale of 1 to 10, how close are we to the end of 1MDB’s financial problems?

That depends on how you define the end. Let me recast what we have done. In June 2015, we said we will resolve 1MDB’s situation. The prime minister mentioned six months, which for me was extremely challenging. Another big GLC which is going through a restructuring is getting three years and RM6 billion of equity.

In six months, we have executed legally binding agreements for 95% of the debt obligations that we had to meet. Of course, we have to complete, which is the exchange of shares for cash. And that we have different stages — February 2016 for Edra and June 2016 for Bandar Malaysia and IPIC.

From that perspective we are almost there, 8/10.

But if you ask me differently, when will you repay the GIL bonds, or the Ipic guaranteed bonds, or the RM5 billion sukuk, then the answer is up to 2039, when that sukuk matures. At this stage, we haven’t decided if we want to repay that bond or not.

So this could be covered by our remaining stake in Bandar Malaysia as well as TRX. There will be a two million sq ft mall. In TRX, we will be building towers as well. There is a lot of future value based on TRX’s current plot ratio of 6.8.

Remember we have the north parcel, which is 55 acres, and the south parcel, which is 15 acres. And plot ratios in KL have gone up to 10. 

It depends on where you draw the line and what you define as the end. But if you draw the line as coming out of the crisis mode that we were in, then we are 10/10. We are now on a sustainable path to resolve our debts.

In terms of our assets, they will become standalone companies, whether owned by us or not ... they will continue to contribute to the economy of the country.

There were calls for 1MDB to bring back the money to Malaysia. Are we going to see any funds repatriated?

No. For the simple reason that we don’t need to. On the one hand, a big portion of the money has been spent for prior fund unit monetisation, albeit in the form of assets. We talked about the US dollar deposits. And now we have the US dollar fund units with which we are going to do the swap with (Ipic).

So, there is no question of that per se.

We just have to find the most efficient way of solving the issue. It isn’t what people may necessarily like to see. Everyone has a wishlist of what they would like to see. But the reality is, we are in a situation where we have limited options.

And so we have had to make the best of what we have.

Instead of incurring debt, would it have been a better business model to sell a portion of the land at an early stage, for example, selling a 30% stake in Bandar Malaysia to fund the relocation costs?

There are many ways to skin a cat. Think about the Bandar Malaysia property — although the title is in our name and it was given to us in 2012, it has taken a period of time to conceive the relocation — to buy the new land for the premises, design, appoint contractors. Plus, we don’t have vacant possession until 2017. Not many private sector players would accept terms like that, and have to fund it.

Although in theory it could be monetised 30% at the time, in practice, it might not be so easy, especially not at the valuation that we would anticipate. Therefore, the model, to me, made sense.

1MDB was a government company, it could take a longer-term view, and we could afford to do it in that way.

And that assured the government would receive the eight (military) bases that it needed. A lot of the things that 1MDB has done would frankly not be done by a private sector company.

Take the infrastructure in TRX. Like we have discussed, you have empirical evidence of how private sector developers won’t do it.

But touch wood, we will see how TRX will do it differently, and the traffic flow will be better. And investors see that, which is why they are willing to pay RM4,500 psf.

Investors have seen what has happened in Canary Wharf, in Marina Bay, and we are doing exactly that here. And that is why they are willing to pay that price.

The challenges in 1MDB arose because the fund over-borrowed and overpaid for some assets. Who is responsible for that? Some people see that this is the biggest bailout in the history of Malaysia.

I’ve already covered the bailout earlier, there is no bailout. So I won’t address it again.

In terms of “overpaid”, when you are in an M&A situation, it is very normal to pay a premium to the seller.

In this case, net asset value is the discounted future cash flow of the assets, plus the land, plus the physical plant. But the real value is in the future discounted cash flow.

Paying goodwill is very common in M&A scenarios. Why do people pay goodwill? There are two reasons — you are getting a good business, you don’t have to build it up from scratch; secondly, the business gives you an opportunity to go and get new business.

Thirdly in our case, there was a strategic imperative from government policy to consolidate three separate companies into a bigger company and use that as a platform to bid for projects and create competition for the lowering of PPA tariffs, and list it. There was a strategic reason to pay the premium.

From that perspective, there was nothing wrong with that. And we have recovered all of that, in the sale, from CGN. From a net book value perspective, we recovered it, plus the dividend we have taken out. If we overpaid, then by extension CGN must have overpaid. But I would argue that neither of us has overpaid. Both of us have a certain objective.

What about accountability?

If you listen to what the opposition is saying, or what some of The Edge headlines implied, there is criminal wrongdoing. But criminal wrongdoing requires certain elements.

These were business decisions, taken via the governance process, which the management proposed and planned. There were independent advisers advising to it. The board then reviewed and gave its consent, and in certain cases, the shareholder approved.

Making a business decision, provided you don’t have those elements of criminal wrongdoing, clearly, this cannot be a criminal offence.

I understand that people want accountability here. But that depends on what kind of accountability you are referring to. Typically in the business world if you don’t do well, you then don’t get your next job, or your next job won’t be as good.

If a business decision doesn’t go according to plan, it doesn’t necessarily translate into criminal sanctions.

Since (you insist) there was no wrongdoing, the board and the management will be all right?

In terms of criminal liability, that has certain requirements. There are ongoing investigations. PAC, PDRM, Auditor General.

I won’t comment on that. There may or may not be wrongdoing. I am not absolving anyone.

What I am saying is that the challenges in 1MDB are business challenges. The only reason people feel so strongly about the issue compared with other businesses that have run into challenges is that the 1MDB has been used as a political issue to gain political mileage.

And by doing that, passions were inflamed, soundbites were used, misleading statements were highlighted.

But in business, sometimes things work out and sometimes they don’t. But that’s a fact. Otherwise, we’d all be billionaires today.

There are challenges. That doesn’t mean there is a crime. We have to identify the causes. What could have been done better? How to do things differently in the future?

But we can’t be bogged down and mired in this issue, when in fact the country as a whole has to move on.

Do you agree with what the critics say, that the Malaysian public is paying a steep price for 1MDB’s mistakes as the money raised from the sale of assets could have gone to the national coffers?

Speaking of critics, there is a famous quote, 

‘A critic is someone who never actually goes to the battle, but who comes out after everything is done and shoots the wounded’.

So, I take a very different view. As a Malaysian with certain skill sets and abilities, I want to be part of the solution and not part of the problem. History has many examples of companies that were set up and didn’t quite achieve their objectives. 1MDB is no different in that case.

What is important is that we have not cost the country money. From the initial RM1 million in equity, all we have taken is a RM950 million loan. Although the land was taken on at a nominal price, we actually took on the liability — the relocation of Bandar Malaysia or the construction of TRX. Everything was fully costed for that. The repayments of the debt burden will come from the monetisation of those assets.

Remember that it was always the plan for TRX to parcelise and sell land. Likewise in Bandar Malaysia.

The only difference is, given the change in business direction, we have had to monetise Bandar Malaysia up front, to de-risk us from our future debt service obligation.

In TRX, we control 100%. Obviously, we have sold some of it but that was part of the plan anyway.

Edra was never our asset to start with anyway. It was a purely private sector asset that 1MDB purchased. So where is the loss in that respect?

If you look at it with a keen eye and the facts, a lot of these criticisms, they are not only misplaced but downright wrong.

The concern that people have (and what upsets them) is that it is a bailout.

I think that question was relevant a year ago. Today, it is not relevant. Because apart from the RM1 million of original equity, and the RM950 million of standby credit facility, which we will need to repay, we have not had to take any money from the government.

Now that we have legally binding agreements, for the Ipic swap, Edra sale and Bandar Malaysia, we don’t need to take any money from the government. There is no question about a bailout.

And I contrast this with other companies. Most recently, Malaysian Airline System Bhd, or prior to this Proton, or Perwaja, or Bank Bumiputra, which required billions and billions of equity injection; we have not had to do that.

Let’s put things in perspective. The government is the shareholder of 1MDB. When a company is in trouble, the first thing you do is to go to your shareholder.

Remember we spoke about General Motors, we spoke about Merrill, in the UK, Royal Bank of Scotland.

Where did the money come from? It came from the government. Because you want to stabilise in order to maximise your asset value recovery. But in Malaysia, the chorus of misunderstanding and misperception is so strong, fuelled by newspapers like The Edge. Let’s be frank, this caused a backlash against what would have been a perfectly normal and reasonable business decision.

When you only put in RM1 million of equity, there is a time when you would expect to inject more equity.

Under any other circumstance, the government should be able to, as a shareholder, support the company. But for various reasons, it was not possible.

I think you have to look at it in a different context. My view is that, given all those, we had to do the best that we could. And the RM950 million will be repaid once the funds come in from the Edra sale, and all the other short-term debt. And from the Edra cash sale proceeds, we will have a surplus of over RM2.5 billion. More than enough cash to finish our infrastructure in TRX, meet other interest payments, pending monetisation of other assets.

So there was no wrongdoing?

I do not see any criminal wrongdoing. Of course, all of us have an opinion. You should have done this, or that. But this is normal. This is what happens.

When Chelsea dropped down the table, they sacked Jose Mourinho. He didn’t intend for Chelsea to perform poorly but it did. As for 1MDB, is anyone to be held responsible?

Frankly, this isn’t for me to say. I think we have ongoing investigations. I think the PAC is made up of five members of the opposition, one of whom has been very vocal outside of the PAC. That is a determination that is to be made, when the PAC makes its analysis. I’d rather people let them do their job, just as I’d rather people let me do my job.

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