Thursday, June 14, 2012

Pension Funds Used To Bailout MAS

Barisan Nasional is executing a monster RM9 billion bailout for Malaysian Airlines System Bhd and is digging deep into the rakyat’s reserves to cover up for its decades of management and abuse

Malaysian Airline System (MAS) announced yesterday the signing of a RM2.5 billion perpetual sukuk programme as part of the monster RM9 billion bailout plan for the loss-making airline.

While there is no question that MAS is in need of urgent rescue after decades of abuse and mismanagement by the Barisan Nasional (BN) government and its cronies, we are taken aback by the fact the rakyat’s hard-earning retirement savings are being forced to invest massively into this bailout exercise.

The RM2.5 billion perpetual sukuk programme is deemed as a debt instrument of the highest risk as there is absolutely no maturity or redemption date for the loan principal.  In essence, this debt instrument is deemed even riskier than junk bonds with the lowest priority in terms of repayment.

In fact this type of bonds are deemed worthy of warnings to investors by both the Monetary Authority of Singapore as well as the Thailand Securities and Exchange Commission.

However, despite the obvious high risk, the Civil Service Pension Fund (Kumpulan Wang Amanah Pencen – KWAP) have been forced to take up a huge RM1 billion stake in the sukuk programme meant to bailout MAS.

On the other hand, Dr Mahathir’s protégé Tan Sri Tajuddin Ramli, one of the key actors behind the financial disaster in MAS, has his RM589 million of debt due to the Government completely written of at the instruction of the Prime Minister’s office.

The Government chose instead to put at risk decades of savings by our civil servants, who rely on payouts from KWAP to sustain their living expenses post-retirement.  Should anything happen to MAS’s ability to repay its debts, then the Government will be forced to conduct another mega-monster bailout to bailout the current bailout.

So far this year, many government-linked companies (GLCs) and institutions are raising massive amount of funds from the bond market – RM3 billion by Johor Corporation, RM11 billion by PLUS Berhad, RM3.5 billion by PTPTN and RM5.25 billion by 1Malaysia Development Corporation.  All these debt add directly or indirectly to the Federal Government’s contingent liability, which as at December 2011 already amounted to RM114 billion.

This doesn’t take into consideration the creatively structure Felda Global Ventures Holdings (FGVH) initial public offering to bailout FGVH, which will see Malaysian states and public funds such as the Employees Provident Fund (EPF) and KWAP subscribing to more than RM3 billion of its shares.

The manner by which our GLCs, statutory bodies, provident funds and tax-payers’ monies are being massively used and abused by the BN government to cover up their excesses will only lead to major systemic risks in our financial system.  At the rate we are going, a Greek tragedy will no longer be just a remote possibility, but an inevitability.
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