Saturday, May 30, 2015

We are "Pleased to Announce" - Desperate Times Calls for Desperate Measures

The Malaysian Ministry of Finance has gotten so desperate, he has to beg the investment arm of a foreign country for a US$1 billion loan to repay the debts of its own subsidiary.

It is only in Malaysia when the a Minister of Finance could be “pleased to announce” that the Ministry’s wholly-owned insolvent subsidiary managed to secure a US$1 billion loan from the investment arm of a foreign country, Abu Dhabi, to repay it own debts.

Dato’ Seri Ahmad Husni Hanadzlah stated that “1MDB has entered into a binding agreement with the International Petroleum Investment Company (IPIC) and its subsidiary Aabar Investments (Aabar)” where IPIC will make a payment of US$1 billion, on or before 4 June 2015.

“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,” according to the Second Finance Minister’s statement.

Malaysians are so embarrassed that our BN Government has no shame and had to resort to begging a loan and/or favour from a foreign government. This is because no other financial institution is willing to lend to 1MDB.

However, what is more important is what Dato’ Seri Ahmad Husni failed to elaborate, leaving Malaysians speculating and fearing for the worse. The US$1 billion payment would not have come for free, and would have had plenty of conditions attached to it. What are these conditions? Did 1MDB sacrifice even more of Malaysians’ future tax-payers’ funds to secure this desperate loan?

This isn’t the first time IPIC has come to the “rescue” of 1MDB. When 1MDB needed to raise funds in 2012 to acquire the independent power producers (IPPs), Tanjong Power and Genting Sanyen, 1MDB had to ask IPIC to provide a guarantee in order to raise the funds via 2 bond issues, each worth US$1.75 billion. The guarantee was necessary despite the fact that 1MDB priced the bonds very attractively at 5.99% coupon rate.

This guarantee was certainly no “friendly gesture” on the part of IPIC or the Abu Dhabi Government, but instead came at a exorbitant price to 1MDB. The extraordinary conditions attached contributed in no small way to the massive annual interest bill and cashflow crunch for 1MDB.

Firstly, 1MDB had to dock approximately 40% of the loan with IPIC as security deposit. This amounted to RM4.47 billion (US$1.4 billion) as disclosed in the March 2014 financial statements. Effectively, this means that 1MDB is paying 5.99% interest on a US$3.5 billion loan despite having access to only 60% of the funds or US$2.1 billion.

Secondly, 1MDB had to offer the option for Aabar to acquire up to 49% equity interest in Powertek Investment Holdings (PIH) and 1MDB Energy (Langat) which are the holding companies for the acquired IPPs in order to secure the guarantee.

Based on the latest financial statements, 1MDB disclosed that its subsidiary 1MDB Energy Holdings Limited has taken a bridging loan facility of US$250 million in May 2014 to buy back these options granted to Aabar Investments. This represents a compensation to Aabar although the final settlement consideration isn’t yet known. In fact, it has been speculated that the options compensation might be as high as an incredulous US$1 billion based on analysis by The Edge Weekly.

Effectively, this US$250 million (or more) represents a fee paid to IPIC in order to secure its corporate guarantee for 1MDB subsidiaries to raise US$3.5 billion, or at least 7.1% of the funds raised!

To put it bluntly, 1MDB might as well have gone to the loan sharks to raise the funds. It is mind-boggling why a 100%-owned subsidiary of the Ministry of Finance needed to become so desperate in paying such outrageous fees, costs and terms in order to secure financing for its activities back in 2012.

Despite the less than pleasant experience above, today we hear the Second Finance Minister proudly announcing that IPIC is extending another US$1 billion to assist 1MDB to repay part of its mountain of debt. He must immediately provide full disclosure on what this US$1 billion “assistance” is going to cost 1MDB, the Malaysian Government and the long-suffering tax-payers.

If not, it will be seen that Dato’ Seri Ahmad Husni Hanadzlah has become complicit in the entire multi-billion ringgit shenanigans Malaysia’s heist of the century.

Tony Pua

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