1MDB rationalisation plan the best available option

Nikita Nawawi
Written by Nikita Nawawi

KUALA LUMPUR – June 1, 2015: The rationalisation plan of government-owned strategic development company 1Malaysia Development Berhad (1MDB) is the best option given the debt-laden company’s financial status, says an economic analyst.

Binary University Professor Dr Zulkifli Senteri said the plan to separate 1MDB into Edra Global Energy, Tun Razak Exchange (TRX) and Bandar Malaysia as standalone companies is a strategic move.

“I assume the three companies are still under 1MDB but separating these entities will allow each one to be more focused on their own sector and have a better chance to survive.

“The loans that are being called ahead of the maturity date will have to be paid somehow or else it will affect the country’s credit rating and ability to borrow in the future,” he said in reference to the payment required of the US$975 million syndicated loan from 1MDB to Deutsche Bank Singapore, ahead of its August deadline.

Responding to the speculation that the large investment by International Petroleum Investment Company (IPIC) and its subsidiary Aabar Investments (Aabar) would jeopardise Malaysians’ position in the three companies, Zulkifli said it would be contingent on the type of investment made.

“If they bought the companies’ assets, they would have the controlling power over them but if it is in the form of share, it will depend on the percentage they own,” he added.

Zulkifli told The Mole that the government has no other option besides selling the assets to the Abu Dhabi-based companies, given the cries of disapproval about 1MDB from some segments of the public.

“Those who are against 1MDB (politically or economically) are opposing any attempt to bring in other Malaysian institutions to partake in 1MDB’s projects.

“Tabung Haji, for one, saw the potential in TRX and wanted to acquire the asset but they were forced to back down due to pressure from various quarters.

“If those institutions were supported by the public to own the assets in the first place, they would have remained in the hand of Malaysians,” he said.

Meanwhile, the rationalisation plan is also causing a buzz in the blogosphere, particularly on the major investment by IPIC and Aabar.

Senior journalist Datuk Ahirudin Attan posted on his blog Rocky’s Bru on Saturday that 1MDB may have ‘turned the corner’ with the deal.

“By June 4, the deal with IPIC, which is the investment arm of the government of Abu Dhabi which controls more than 90 per cent of the United Arab Emirates’ oil reserves, will render the so-called scandal that was BSI Singapore a non-issue and the Deutsche Bank will get its money long before it is due.

“The deal will involve IPIC and Aabar gaining a number of assets, including the units that are held in the company’s BSI Singapore account. So who says assets from the PetroSaudi joint venture and murabaha has no value?

“By June 4, it would have fully redeemed the last US$939.9 million units towards full early settlement of the Deutsche Bank facility,” he said.

Prominent anonymous blog Another Brick in the Wall, however, said the Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah should have explained briefly what the ‘binding agreement’ with IPIC and Aabar was about.

“By saying it is an agreement that enable 1MDB to get US$1 billion to pay the US$975 million, it opens 1MDB to all sort of speculations, new allegations and adding to the existing piles of slanders that need lengthy explanation to the simplistic one liner conclusion and accusations.

“A simple analogy to the ‘binding agreement’ is similar to a 6-month fixed deposit that has to be withdrawn before maturity out of some immediate needs for money. It enables the money to be withdrawn before the maturity of the deal.

“So it is not a case of new borrowing or loan shark, neither is it fresh capital injection which will invite accusation of dilution of Government or rakyat (people) interest in 1MDB. Confidently, it is not a bailout as openly opposed by (Youth and Sports Minister) Khairy (Jamaluddin Abu Bakar). Petronas money is not touched as a bailout piggy bank,” he said.

On Wednesday, the Ministry of Finance (MoF) has presented to the Cabinet the rationalisation plan that is expected to be fully implemented by early next year.

Husni was quoted in a statement: “As has already been achieved with Edra Energy, this (the plan) will see TRX and Bandar Malaysia established as standalone companies, with full autonomy and accountability for their operational and financial performance.

“Whilst options are being pursued with respect to the monetisation of Edra Energy, the MoF will remain a key shareholder in TRX and Bandar Malaysia, which will raise equity via third party investors. Proceeds raised will be used for capital expenditure and to reduce 1MDB’s debt,” the statement read.

Ahmad Husni had also announced 1MDB’s binding agreement with the IPIC and Aabar in the same statement.

“As part of this agreement, IPIC will make a payment of US$1 billion, on or before June 4. This US$1 billion payment will be used to repay a US$975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders.

“The agreement will also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course,” he said.



About the author

Nikita Nawawi

Nikita Nawawi

Nikita Nawawi is an up-and-coming writer who started his involvement in the media industry serving established local English daily, before joining The Mole in October 2014 as journalist.