KUALA LUMPUR (Mar 13): Putrajaya is "deluded" to think that an Initial Public Offering (IPO) of 1Malaysia Development Bhd's (1MDB) energy subsidiary will solve the strategic investment fund's cashflow problems, DAP said, as the exercise would barely raise RM18 billion against its RM42 billion debt.

Party publicity chief Tony Pua said that worse still was the fact that the ringgit's drop in value and additional loans, which the state fund may have taken during the year, could mean the debts were closer to RM50 billion.

As such, Putrajaya should not extend bailout funds to 1MDB as it would be akin to "throwing good money after bad".

"Even in the event where 1MDB is able to successfully list its energy subsidiary and sell its landbank at premium prices, the financially stricken company can only raise barely RM18 billion to repay its RM42 billion debt recorded as at 31 March 2014," Pua said in a statement today.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah in Parliament yesterday said the government was hoping that the IPO from 1MDB's energy arm would be able to pay for the company's growing debts.

"1MDB's stumbling block is it's cash flow. But once the IPO is up, this would be settled," he had said.

But Pua, the Petaling Jaya Utara MP said today that Ahmad Husni must be "deluded" for thinking that the listing of 1MDB's energy arm could rescue the debt-laden state fund.

Pua said 1MDB had spent RM12.1 billion to acquire three power companies - Tanjong Energy Holdings, Genting Sanyen and Jimah Ventures, but these have been impaired by RM1.19 billion in the March 2013 financial statements, leaving them with a RM10.9 billion in value.

In addition, to acquire these companies, 1MDB borrowed  borrowed RM6.7 billion and US$1.75 billion for Tanjong, RM700 million and US$1.75 billion for Genting Sanyen and RM600 million for Jimah Ventures.

Based on current exchange rates, these loans amount to a whopping estimated RM20.9 billion in loans.

"In short, 1MDB took RM20.9 billion of loans to acquire its power assets worth only approximately RM10.9 billion.

"Part of the reasons for the outsized loans is due to the nature of the Goldman Sachs-sponsored bond exercises which involved an incredulous 11% in 'commissions, fees and expenses', as well as the highly onerous terms placed by International Petroleum Investment Corporation (IPIC) which provided the guarantee for the US Dollar-denominated bonds," Pua said.

As such, 1MDB has been desperate to list its energy subsidiary in order to pare down these excessive loans, given the double whammy of having overvalued the assets when buying them, he added.

"As a result, it became extremely difficult to secure a significantly higher valuation despite the numerous lucrative contracts and extensions which the government has awarded 1MDB last year.

"Therefore even with a generous RM12 billion valuation for 1MDB’s energy arm at its IPO, by selling 80% of its stake will only raise RM9.6 billion which is barely half the value of the loans it took," Pua said, adding that the IPO will not even be  sufficient to clear the loans it has taken to acquire its energy subsidiaries.

Ahmad Husni had also told Parliament that 1MDB's remaining debts would be settled by monetising assets such as the  Tun Razak Exchange, Bandar Malaysia, and other landbanks in Penang.

But Pua pointed out that  the valuation of properties in the books of 1MDB was only worth RM7.08 billion as at 31 March 2014.

He added that even  this figure has been significantly inflated with a whopping RM3.95 billion upward revaluation from 1MDB’s cost of RM3.13 billion.

"Even if 1MDB was to be able to successfully sell all of its land with a generous 20% premium to the current inflated valuation, 1MDB can barely raise another RM8.5 billion in funds," he added.

Pua also said it was time for Prime Minister Datuk Seri Najib Razak, who is also finance minister, to honour his promise made in Parliament last October, where he said the government would only be responsible for the RM5.8 billion of loans which it had guaranteed, even if 1MDB were to go bankrupt.

"That way, the cost to taxpayers as a result of the sheer incompetence, mismanagement and embezzlement in the 1MDB misadventure can be limited to just RM5.8 billion," he said.