Thursday, April 14, 2016

Let PAC Hansard be the judge of whether 1MDB broke-even or suffered a massive loss from the US$9.83 billion sale of Edra Global

Two days ago, 1MDB said its President, “Mr Arul Kanda has delivered major asset sales and repaid all short term debt/bank debt, with 1MDB now having RM2.3 billion cash in the bank. The  company  has  also  recently  repaid  the  RM950  million  standby  credit  facility  from  the Government of Malaysia. Even YB Tony has no choice but to admit this success, against all odds.”

I responded  that  perhaps,  Mr  Arul  Kanda  has  forgotten  that  he  has  been  forced  to  admit that the  power  plant  assets  which  were  acquired  for  RM12.1 billion  was  sold  for  a  loss  at RM9.83 billion.  The proceeds was used to pay off RM950 million of the Federal Government’s  emergency  loan  granted  last  year.    However,  US$3.5  billion  (RM13.6  billion)  worth  of bonds which were raised to purchase these power plants remains outstanding!

I added that I am flabbergasted by Arul Kanda’s definition of “success, against all odds”.

Mr Arul Kanda is upset at being told the truth.  He now says I have “conveniently forget(ten) to mention that whilst 1MDB purchased the power assets at approximately RM12 billion and sold  it  at  RM9.83  billion,  the  company  also  received  approximately  RM2  billion  in  cash dividends during the period of ownership, which totals RM11.83 billion i.e. a cash-on-cash, near  "break-even"  position.  YB  Tony  knew  this  fact,  as  recorded  in  the  Hansard  of  my explanation during the PAC proceedings, yet he chose to hide it and mislead the Malaysian public.”

Hence I have attached 2 pages of the relevant proceeding from the Hansard with regards to the above.

As can be read, I had reminded Arul Kanda, and the BN MPs present, that if you chose to take  into  consideration  the  purported  RM2  billion  dividends,  then  you  must  similarly  take into consideration the cost of the loans taken to acquire these power plants.

In turn, Arul Kanda responded that

“I think apa yang Yang Berhormat Petaling Jaya Utara katakan adalah betul daripada segi  accounting  disebabkan  the  rules  of  accounting,  you  have  to  treat  certain expenses in a certain way and dividend in certain way.  
Akan  tetapi  kalau  kita  lihat  dari  segi  cash  on  cash,  maknanya  kita  masukkan RM12 bilion  cash  equity.  Kita  dapat  balik  RM9.83  bilion  cash equity  dan  juga  kami  telah terima lebih kurang RM2 bilion cash dividend. Maknanya cash on cash breakeven.  
Akan  tetapi  accounting  treatment  Yang  Berhormat  Petaling  Jaya  Utara  betul.  The accounting treatment is your dividend goes out because you are paying interest. So, the cost of interest is a loss to the company.”

Any businessman or accountant, upon hearing the above arguments from Arul Kanda will be laughing  their  pants  off.    He  conceded  that  I  was  correct  in  my “proper  accounting”
calculations because interest costs amounting to a whopping RM3.5 billion or more must be taken into account if 1MDB were to take into account the dividends.

However, no one would understand what the heck is Arul Kanda’s “cash on cash breakeven”argument.  Did he mean that cash used to service interest cost isn't "cash"?

Worse,  I  decided  to re-check  the  audited  accounts  of  1MDB  and  it’s  Edra  subsidiaries  for 2013  and  2014  -  the  Edra  power  plants  never  paid  a  single  sen  of  dividend  to  1MDB,  the parent holding company!

I almost feel really bad heaping so much embarrassment upon the besieged 1MDB President who  is  spinning  out  of  control.Let  me  repeat  myself,  I  am  truly  flabbergasted  by  Arul Kanda’s definition of “success, against all odds”.

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