Tuesday, April 05, 2016

Why now Abdul Wahid Omar says 1MDB unsustainable from start? But other GLCs OK? Bank Negara?

It is interesting for Minister in charge of Economic Planning to come out NOW and say 1MDB unsustainable from start...? He goes on to say all OK [financial performances and governance...] with regard other high profile GLCs like Maybank, CIMB, Axiata, Telekom Malaysia and Sime Darby,...

Is it an attempt to save the rest of Malaysian government-owned and/or government-linked companies, from suffering a similar public perception, questions, etc that is befalling 1MDB...If 'hanky-panky' and wrong doings are discovered in 1MDB and related companies, naturally every other GLCs will also suffer the same public scrutiny...

Now the Minister says 1MDB was unsustainable from the start, a fact that could have been admitted from the very start...

If a private company fails, it just winds-up and its creditors recover what they can from its assets - but the problem is made worse here, because Malaysian government guaranteed a lot of these debts...so still, we will be liable.  

Now, the question is WHY? Is the Najib team breaking-up, and some are jumping off the sinking ship, and trying to distinguish themselves as being different...? Has this got something to do about who will be the next Bank Negara chief?

Well, how much debt? PM Najib informed us that there is no outstanding debt obligations at the moment - I would take that as what needed to be paid till now has been paid - but the debt still remains...

Remember that Moody revised its rating from positive to stable - and this means, the obligation for the annual payment to bond holders increased. It would be good if our Prime Minister tells us how much we now have to pay. Are the bonds in RM or USD? This will also be significant. To understand the difference between bonds and shares - see  1MDB, Malaysian Bonds, Moody, Credit Rating - More Worries for Malaysians?

                                       Dato Sri Abdul Wahid Omar
Dato’ Sri Abdul Wahid Omar was appointed as a minister in the Prime Minister’s department in charge of economic planning on 5th June 2013. 

1MDB was unsustainable due to low capital, high debt: Abdul Wahid Omar

The financial structure of Malaysian state investment vehicle One Malaysia Development Berhad (1MDB) was unsustainable from the very start, according to a top government minister.

1MDB's design was an exception, not the norm, for Malaysian government-linked companies, Abdul Wahid Omar, Economic Planning Minister of Malaysia, told CNBC's"The Rundown" on Monday.

Rather than being listed like other firms, 1MBD, which was set up in 2009, was wholly owned by the Ministry of Finance, he said.

"The model that they took was low capitalization and huge borrowings, and I think as they found out, it wasn't a sustainable model. With that came debt realization, where the board has now embarked on a rationalization plan."

1MDB teetered on the verge of default in 2015 after racking up 42 billion ringgit ($11 billion) in debt in just five years. After missing various deadlines to repay loans to creditor banks, speculation was rife that the company wouldn't be able to service the rest of its obligations. Because the fund is wholly owned by the government, Prime Minister Najib Razak's administration is responsible in the case of a default. At the time, 1MDB was widely considered a serious liability risk for an economy whose finances were already under strained by the oil price crash. Crude oil-related income accounts for 30 percent of Malaysia's government revenues.

A debt rationalization program was launched in May 2015 to reduce 1MDB's burden by selling assets, and in November the beleaguered fund successfully sold its energy assets for $2.3 billion to a Chinese nuclear power supplier.

"The norm [in Malaysia] is successful transformation of the government-linked companies that we've embarked on," Abdul Wahid told CNBC.

Protesters demanding Prime Minister Najib Razak's resignation during an August rally in Kuala Lumpur.
Getty Images
Protesters demanding Prime Minister Najib Razak's resignation during an August rally in Kuala Lumpur.
He noted high-profile firms, including Maybank, CIMB, Axiata, Telekom Malaysia and Sime Darby, had all gone through this transformation by steadily improving their financial performances and governance and enhancing their role in nation-building.

1MDB's outlook took a new twist in July, after the Wall Street Journal (WSJ) reported that $700 billion had been transferred from the fund to the Prime Minister's personal bank accounts back in 2013. Najib has repeatedly denied any wrong-doing. In January, he was cleared by the Malaysian Attorney General after a probe found that the money came from the Saudi royal family.

But the finding has done little to dampen interest in 1MDB's activities, with the fund currently being investigated by local and international officials for alleged corruption and money laundering.

Regarding the scandal surrounding the wealth fund, Abdul Wahid said Malaysian authorities were doing their best to investigate the matter.

"That process is ongoing, including the enquiry by the public accounts committee. This is a parliamentarian committee, comprising of members on both sides of the political divide, the opposition and the government and we should allow this process to continue," he said.

The latest revelations came on Friday, when the WSJ reported that a production firm called Red Granite Pictures, co-founded by Najib's stepson, was used to finance the making of Hollywood feature "The Wolf of Wall Street," using money from 1MDB. But the fund has said it neither invested in nor transferred any money to Red Granite.

Speaking more broadly, the minister said Kuala Lumpur was moving towards fiscal consolidation as it diversified its economy away from energy. Southeast Asia's third-largest economy grew a faster-than-expected 5 percent on-year in 2015, but that was still slower than 2014's rate of 6 percent.

"The bold actions that we've undertaken to reduce our fiscal deficit down to 3.2 percent last year and this year, notwithstanding the lower oil prices, still committing to 3.1 percent. We've broadened our revenue base in terms of the implementation of the goods and services tax [GST], and we've rationalized subsidies," he said.

In a note last month, rating agency Moody's praised the government's fiscal management, but noted that the public debt burden had not yet undergone a material improvement. Earlier this year, Moody's revised its sovereign rating outlook to stable from positive.

"This year, with a more challenging environment, we do expect to grow between 4-4.5 percent and one reason why we're able to grow sustainably is that we've diversified the structure of our economy, where we've reduced dependence on commodities from 27 percent in 1997-98 to 18 percent currently," Abdul Wahid noted.- CNBC, 4/4/2016

1MDB's financial model unsustainable, Wahid tells CNBC

KUALA LUMPUR (April 4): 1Malaysia Development Bhd's (1MDB) financial model of low capitalisation and huge borrowings was unsustainable from the beginning, Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar told CNBC.

CNBC quoted Abdul Wahid as saying in an interview that 1MDB's structure was an exception, and not the norm for Malaysian government-linked companies (GLC). Rather than being listed like other firms, 1MDB, which was set up 2009, is wholly-owned by the Finance Ministry, according to him.

"The model that they took was low capitalisation and huge borrowings, and I think as they found out, it wasn't a sustainable model.

"With that came debt realisation, where the board has now embarked on a rationalisation plan," Abdul Wahid said.

CNBC reported that 1MDB, after accumulating RM42 billion in debt within five years, raised concerns that the company might not be able to service its debt obligations.

As 1MDB is wholly-owned by the government, CNBC reported that Prime Minister Datuk Seri Najib Tun Razak's administration was responsible, should there be a loan default.

But Abdul Wahid said Malaysia had a track record of successful transformation of GLCs.

He said companies, including Malayan Banking Bhd, CIMB Group Holdings Bhd and Axiata Group Bhd, had all gone through this transformation by steadily improving their financial performance and governance, besides enhancing their nation-building role.

"The norm (in Malaysia) is successful transformation of the government-linked companies that we've embarked on," Abdul Wahid was quoted as saying. - The Edge

Wednesday, 23 April 2014 | MYT 12:00 AM

Bulk of 1MDB loans guaranteed by Govt

PETALING JAYA: More than two-thirds of 1Malaysia Development Bhd’s (1MDB) total borrowings of RM36.25bil are supported by guarantees either from the Government, the company itself, which is entirely owned by the Minister of Finance Inc (MoF Inc), or backed by its partners from Abu Dhabi.

The fund’s latest financial accounts ending March 31, 2013 viewed by StarBiz showed that of the total borrowings, a total of RM28.22bil of its loans and bonds were secured. 

Interestingly, 1MDB’s only unsecured loan of US$3bil (RM9.9bil) came with a “letter of comfort” from its shareholder - MoF Inc. 

This amount was raised by its subsidiary, 1MDB Global Investments Ltd, and the proceeds are to be used as seed capital for the development of the Tun Razak Exchange project along Jalan Tun Razak in Kuala Lumpur. 

The interest on the unsecured private debt securities of US$3bil is at 4.4% per annum, which surprisingly is lower than the rates charged on some of the loans that were guaranteed by the Government.

Generally, the interest rates on the loans backed by guarantees were between 4.04% and about 6%. For papers that are backed by assets of 1MDB such as its land, the interest rates that the market charges the fund is higher at between 7% and 8%.

For instance, a RM330mil redeemable bond that had been issued with maturity periods between 6.5 and 13 years and secured against the assets and properties of 1MDB carried the highest cost of funds, ranging between 7.1% and 8.35%. 

The biggest loan that is guaranteed by the federal government is the maiden RM5bil Islamic medium-term notes that were raised when the fund started in 2009. The 30-year bond issue was priced at an annual rate of 5.75%, a level considered high for a Government-guaranteed bond.

The only other secured loan that is fully guaranteed by the Government is an RM800mil term loan with a tenure of 10 years maturing in 2022. 

Repayment of the principal is over 14 instalments beginning April 2016 with interest charged on a half-yearly basis at 4.04% per year.

As to the corporate guarantee issued by companies from Abu Dhabi, it is mainly for the US-dollar debt papers that 1MDB had taken to purchase power plants from the Tanjong and Genting groups.

International Petroleum Investment Co PJSC (IPIC), which is an investment company of the Abu Dhabi Government, had guaranteed US-dollar debt papers to the tune of US$3.5bil to help 1MDB fund the purchase of the power plants.

In return for this corporate guarantee from IPIC, 1MDB has given a 10-year option to Aabar Investment PJS to acquire up to a 49% equity interest in both the power plants.

There is a refundable deposit held aside as collateral for the guarantee by IPIC and part of 1MDB’s strategy to list its energy assets, which is targeted within the next one year.

The term loans taken by 1MDB to purchase the power plants are expensive, as they are charged at the cost of funds plus a margin of 2% per year that is payable at intervals of three months.

To buy the Tanjong group’s power plant, 1MDB had taken up a term loan of RM6.17bil, while the syndicated bridging loan to part-finance the Genting group’s power-generation unit was RM607.52mil.

This is also guaranteed by the company with interest payable on a quarterly basis at the cost of funds plus a margin of 2% per year.- Star, 23/4/2014

No comments: