PETALING JAYA: Controversial 1Malaysia Development Bhd (1MDB) has given a brief summary of how it has incurred a RM41.8bil debt bill in a space of five years.
While the explanation showed where the money raised has gone to, it did not debunk criticism on why a sum of RM15.4bil raised locally and some of it guaranteed by the Government, are placed with funds outside the country for purposes of investments and as security deposit for loans.
It also reveals a staggering RM4.5bil that 1MDB has incurred in financing and capital cost and RM900mil in foreign exchange cost, which accountants describe as a sizeable amount that needs to be explained further.
1MDB president and group executive director Arul Kanda Kandasamy said the clarification on the use of its RM42bil debt was necessary to address allegations that RM27bil was “lost” or “missing”.
“In recent weeks, there has been much speculation about the use of RM42bil of debt raised by 1MDB, and more specifically that RM27bil of the debt proceeds are allegedly “lost” or “missing”.
“We provide a summary of what the RM42bil debt has been used for, information that is fully disclosed in 1MDB’s audited and publicly available accounts from March 31, 2010 to March 31, 2014.
“We trust this clarification will help to clear any confusion on this matter,” he said in a statement.
One of the strongest critics of 1MDB is former Prime Minister Tun Dr Mahathir Mohamad who has said that he could not account for some RM27bil of the RM42bil in debts carried by 1MDB.
In the summary, 1MDB for the first time revealed how much it has placed as investments with foreign funds and amounts deposited as security with Middle East funds for guarantees on loans.
The funds for investments are placed with Brazen Sky that has received RM6.1bil and GIL Funds that is holding RM5.1bil.
A sum of RM4.2bil has been placed with Aabar Investments Deposits as security for a US$3.5bil(RM12.9bil) bond issued by 1MDB in 2012. The bonds were issued when 1MDB acquired power plants from T. Ananda Krishnan’s Tanjong Group and the Genting Group in 2012.
The purchase of the power plants was the biggest item in 1MDB’s shopping list. However, the power plants came with a debt of RM6bil, which means 1MDB incurred a cash outlay of only RM12bil to buy the assets, although it lists RM18bil in its summary.
The next biggest item in the Finance Ministry-sponsored fund is a sum of RM1.7bil it paid to acquire three parcels of land – the Tun Razak Exchange and Bandar Malaysia in Kuala Lumpur and 234 acres (94.6ha) in Air Itam, Penang.
1MDB refuted allegations that the three parcels of land cost RM2.1bil, pointing out that the amount incurred was RM1.7bil.
The fund said it paid RM200mil for the TRX land and RM400mil for 495 acres (200ha) in Sungai Besi that is now known as Bandar Malaysia.
Both parcels of land are among the last pieces of large developments left in the city and had been the target of several prominent groups before it was given to 1MDB without any competitive tender.
Since 2011, 1MDB has re-valued the 72-acre (29ha) TRX development and the Bandar Malaysia parcel several times to reflect its soaring valuations.
The two developments now carry a combine value of RM4.3bil.
However, an accountant said the cost of financing and working capital incurred by 1MDB to acquire the assets and run its operations at RM4.5bil was on the high side.
“It raised debts to acquire power plants and three parcels of land. The other amounts raised were largely placed with fund managers as investments or as security deposits. Investments placed with fund managers should give returns and not incur financing cost.
“Similarly, the deposits should also give returns and not incur financing cost,” said the accountant.
The accountant pointed out that stripping out the investments placed with the funds outside Malaysia and the debt of RM6bil inherited when acquiring the power plants, the actual cash outlay 1MDB incurred in acquiring the power plants and three parcels of land was RM13.7bil.
“In acquiring assets of RM13.7bil, it incurred RM5.4bil in cost of financing, working capital and foreign exchange cost between 2010 and 2014.
“That needs further explanation. Without a breakdown in how much was the finance cost and working capital it is difficult to say whether the funds were well utilised,” said the accountant.
PETALING JAYA: 1Malaysia Development Berhad’s summary on its RM42bil debt only appears to be a confirmation of public suspicions about the government investment arm, said PKR secretary-general Mohd Rafizi Ramli.
A regular critic of the investment fund, he said he was both delighted and aghast by the breakdown, which was presented based on 1MDB’s audited and publicly available accounts from March 31, 2010 to March 31, 2014.
“I am delighted because there is finally some response to calls for accountability, but I’m aghast at the audacity to disclose the figures as though to show nothing is amiss in 1MDB,” he said.
For starters, Rafizi said 1MDB’s financing cost was the most expensive he had seen, at RM4.5bil with a 10.7% average financing cost that must have included consultancy fees, arranger fees and interest.
He also raised questions on the type of short-term financing and advisory 1MDB had taken at that time, seeing as most of its debts were not even due yet.
“It might have also bought back or terminated some options at a great loss.
“Who benefited from this amount? Which options had 1MDB taken?” Rafizi asked.
On 1MDB’s RM900mil realised foreign exchange loss, Rafizi claimed it was “purely bad management and incompetence” by the investment fund.
“What kind of company allows a RM900mil realised foreign exchange loss? Which transactions and what assets incurred this forex loss?” he demanded.
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