Tuesday, February 24, 2015

1MDB In Serious Financial Distress?

A RM3 billion bailout from the Ministry of Finance for 1Malaysia Development Berhad (1MDB) proves that 1MDB is in serious financial distress despite the valiant denials by the Government.

It did not come as a surprise to read the headlines of The Edge Financial Daily yesterday which hinted of a “MOF Cash Injection For 1MDB” in an article entitled “After loan from Ananda Krishnan, 1MDB may need the ministry’s money”.

The breaking story reported that “1MDB was not only helped by billionaire T. Ananda Krishnan to settle its RM2 billion debt to banks, but it may also require a cash injection of as much as RM3 billion from its owner, the Ministry‎ of Finance (MoF), say sources.”

The report also pointed out that “the controversial debt-laden outfit is facing a cash crunch as income from its power assets is not enough for debt servicing and it has run out of borrowing options…”

Newly appointed CEO, Arul Kanda Kandasamy in response, validated the story stating that “our 100% shareholder, the Ministry of Finance will be involved, as relevant and as required, in the interests of maximising shareholder value” when seeking refinancing "from the best available sources".

The above proved beyond all doubts the critics claims that 1MDB is in serious financial distress. This is despite the fact that various Ministers have persistently denied any problems with the company and valiantly defended that 1MDB was in sound financial health.

Datuk Seri Najib Razak, the Prime and Finance Minister, had responded to a written question from Member of Parliament for Bagan, Lim Guan Eng on the 29 October 2014 that:

"The government will not be liable to 1Malaysia Development Bhd’s (1MDB) debts if the company goes bankrupt…Like other companies governed by the Companies Act, 1MDB has limited liability, and apart from loans or bonds that had government guarantees, 1MDB financial matters are not included in the government's contingent liabilities."

When challenged in Parliament in 6 November last year, Deputy Minister, Datuk Ahmad Maslan who responded on behalf of the Finance Ministry, that the Government is not obliged and does not intend to support the company’s RM42 billion of debt other than the RM5.8 billion it has officially guaranteed.  He told the Dewan Rakyat that:

"Tiada apa tanggungan terhadap hutang atau bayaran faedah yang belum atau telah terakru yang perlu ditanggung oleh negara atau Kerajaan Malaysia… saya ingin memaklumkan bahawa apa yang kita jamin itu RM5.8 bilion adalah di bawah tanggungjawab kita dan yang lain itu adalah di bawah tanggungjawab syarikat."

The Deputy Finance Minister further insisted that 1MDB is in sound financial health and there’s nothing for the people to worry about.

"…1MDB juga mempunyai cash sebanyak RM11 bilion. Mereka mempunyai keadaan kewangan yang dikira sebagai sihat dan pada kita tidak ada perkara yang perlu dirisaukan tentang 1MDB ini."

The other Deputy Finance Minister, Datuk Chua Tee Yong even had the cheek to tell reporters last month that “for banks to allow (an) extension, this also shows that they have a certain confidence in the company,” dismissing claims of financial troubles in 1MDB.

Hence the perplexing question is – why did 1MDB need to beg a RM2 billion loan from Tan Sri Ananda Krishnan and a RM3 billion government bailout when it is allegedly doing such good business, has excellent credit ratings, is a “responsible borrower” and even purportedly has RM11 billion in cash?

In fact, Arul Kanda even proudly announced that the Company had made a tidy profit of US$488 million (RM1.78 billion) from the controversial Petrosaudi deals.  If everything that 1MDB “invested” in has been so profitable – Petrosaudi, Independent Power Producers (IPPs) or real estate – where the heck did all these multi-billion ringgit profits go?

The Finance Minister and his Deputies have obviously and intentionally hidden the truth from Malaysians in Parliament.  Malaysians in turn must hold them to their word that the Government will not be responsible for 1MDB’s finances “like other companies governed by the Companies Act” which have “limited liability”.

Any Government bailout attempt must be opposed and stopped until a special independent audit is set up to uncover the truth behind the outrageous RM42 billion 1MDB mega-scandal, while those responsible for fraud, mismanagement and negligence are brought to justice.

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