In an interview with The Edge this week, 1MDB President Arul Kanda boasted that 1MDB was not bailed out by the government like in the cases of national carrier Malaysian Airline System Bhd (MAS), or national carmaker Proton.
He claims, “now that we have legally binding agreements for the IPIC swap, Edra sale and Bandar Malaysia, we don’t need to take any money from the government. There is no question about a bailout.”
Arul Kanda perhaps has been a little too quick to forget that the Najib administration granted RM950 million of emergency credit to 1MDB in February last year, despite having promised the Parliament that the Government would not bailout 1MDB.
Then a month later, the Government provided 1MDB with another “letter of support” to borrow another US$150 million (RM650 million) from Bank Exim.
Then in last August, Tenaga Nasional (TNB) took over a 2,000MW power plant concession from 1MDB which the latter failed to deliver, after the Government allowed TNB to revise upwards the electricity tariffs to be paid for power supplied by the new plant.
How can Arul Kanda say with a straight face that there hasn’t been a bailout?
In fact, even his argument that 1MDB did “not take any money from the government” because 1MDB has “legally binding agreements” with IPIC for the debt-asset swap, the Edra sale and Bandar Malaysia is glaringly flawed.
The projected RM18 billion debt-asset swap with IPIC hasn’t been completed and there is no certainty that 1MDB would be able to cough out RM18 billion of assets to swap the equivalent amount of debt with IPIC by June 2016.
In fact, the debt-asset swap agreement signed in June 2015 was only possible because the Ministry of Finance indemnified IPIC of any losses. In effect, the Government has provided an indirect guarantee to IPIC to bail out 1MDB – if 1MDB fails to fulfil its part of the obligations, the Malaysian tax-payers will have to fork out cash to compensate IPIC. Will that not be a bailout?
The Edra Global sale cannot, by any measure, be deemed a success because 1MDB suffered at least RM2.2 billion of losses on the investment. 1MDB acquired the power companies for RM12.1 billion and sold them for RM9.83 billion. If that is good business, then I’m not sure what Arul Kanda would describe as bad business.
Furthermore, the sale of Bandar Malaysia at a massive profit only happened because the Federal Government sold the land to 1MDB at heavily discounted bargain basement prices. 1MDB bought the land parcels for RM1.6 billion in 2012, and recently sold 60% of the land for a purported RM7.41 billion despite not having laid a single brick on the land.
The money received from the sale should have gone into the national treasury to help the man-on-the-street cope with rising costs of living. Instead, it went to 1MDB to help 1MDB pay down its debts.
Indeed, President Arul Kanda might be right that 1MDB was not bailed out by the government like in the cases of national carrier Malaysian Airline System Bhd (MAS) or national carmaker Proton. 1MDB’s case is far worse, far bigger as it involves tens of billions of ringgit, far more devious, and much more opaque.
Only the financially illiterate would believe Arul Kanda or any of the Cabinet Ministers that rescuing 1MDB did not involve taking money from the tax-payers.