Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on June 4, 2018 - June 10, 2018

DATA watchers know that student loans provider Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) and Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) are among the largest issuers of debt guaranteed by the federal government, which stood at RM238.1 billion as at end-2017.

The status of their guarantees is unchanged. Yet, contrary to The Edge’s estimates last week, the RM40.2 billion owed by PTPTN and the RM11.5 billion by LPPSA, a statutory body that gives out loans to civil servants, have not been included in the RM199.1 billion that the federal government counts as committed government guarantees as at end-2017.

“The [RM238.1 billion] has not changed. Neither is there any reclassification. What the MoF (Ministry of Finance) has done is evaluate each of these government guarantees and determine if we are already being called to service these [debt]. So, in the case of DanaInfra (Nasional Bhd) and Prasarana (Malaysia Bhd), we are already being called to service their debt … Khazanah (Nasional) and TNB (Tenaga Nasional Bhd) we don’t include because [they] are fully able to service their debt … If we were to add all the non-committed government guarantees, the [federal government] debt figure would be even higher,” says Tony Pua, special officer to the Minister of Finance and Member of Parliament (MP) for Damansara.

Simply put, those on the new list “have little to zero potential” of generating revenue and LPPSA and PTPTN were excluded because the statutory bodies “have revenue-generation capability, for example through loan service repayments”, and have so far not required the government to service their debt.

It is worth noting that the federal government transferred civil service housing loans of RM21.9 billion to LPPSA off the balance sheet in January 2016 and only RM4 billion showed up on the government guarantee list at end-2016, which grew to RM11.5 billion by end-2017.

If all of the guaranteed debt of excluded companies and statutory bodies were to be counted, federal government debt and guarantees could rise from RM1.0873 trillion (80.3% of GDP) to RM1.2139 trillion (89.8% of GDP), a back-of-the-envelope calculation shows. We assume the RM3.9 billion under SRC International Ltd (1Malaysia Development Bhd’s former subsidiary now under Minister of Finance Inc) has been counted under 1MDB.

As announced on May 24, federal government debt of RM1.0873 trillion as at end-2017 is made up of (1) RM686.8 billion official debt; (2) RM199.1 billion committed government guarantees [items (A)+(B)+(C) in the table]; and (3) RM201.4 billion committed lease obligations from a list of public private partnership (PPP) projects.

In deriving the RM199.1 billion, the largest debt was Pembinaan PFI Sdn Bhd’s RM50.2 billion, followed by DanaInfra’s RM42.18 billion. DanaInfra is a special purpose vehicle (SPV) that borrowed to fund infrastructure projects including the mass rapid transit (MRT).

“PFI’s loans do not appear as a contingent liability in the Memorandum of Guarantees in the Accountant General’s Report because the repayments to its lenders are structured as ‘rental’ payments by the government rather than as debt- servicing charges for an SPV that issues bonds such as DanaInfra,” says Ong Kian Ming, special officer to the Minister of Finance and MP for Bangi, who has written extensively on PFI.

1MDB — which only had a debt of RM9.5 billion on the “old” guaranteed debt list — is third with RM38.3 billion. According to Ong, the RM38.3 billion is 1MDB’s net debt — a figure derived after deducting the RM11.35 billion cost of its land assets from its RM49.6 billion total debt commitment (principal plus interest from April 2018).

Other large holders of guaranteed debt include rail owner-operators: Prasarana, which owns and operates Malaysia’s LRT and KL Monorail networks (RM26.6 billion); and Malaysia Rail-Link Sdn Bhd, owner and operator of the East Coast Rail Line project (RM14.49 billion).

Then there is Pembinaan BLT Sdn Bhd’s RM8.5 billion. The company is owned by Minister of Finance Inc and has built at least 74 projects with a gross development value (GDV) of RM9 billion for the Royal Malaysian Police (PDRM), and whose debt did not appear on the old list. It raised RM10 billion in bonds secured by guaranteed rental payments by the government for the use of police quarters built by it, Ong says.

When asked about the difference between the new and old debt classifications, Finance Minister Lim Guan Eng reiterates the government’s commitment to transparency, which means the necessary disclosures are likely to continue.

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