1MDB responds to KiniBiz

By admin-s On Feb 5, 2015

With a new man at the helm, controversial strategic development company 1Malaysia Development Berhad (1MDB) is finally engaging its various critics and controversies on its dealings over the past few years. But 1MDB still leaves more questions than answers after a response to various questions posed by KiniBiz.

1MDB talks on Cayman Islands, fighting fire and paper gains

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Despite high fees, loans taken out by strategic development entity 1Malaysia Development Berhad (1MDB) were likely believed to be in its best interests, said newly-minted chief executive officer Arul Kanda.

In an emailed response to KiniBiz, Arul said financing fees are subject to varying conditions specific to the arrangement and that there is “no one-size-fits-all solution when it comes to raising debt”.

“The benefit of hindsight makes it very easy to criticise decisions made in the past, but I’m sure that at that time, the decision made by the company was one that that it believed served its best interests,” said Arul to KiniBiz.

Arul was responding to a list of questions KiniBiz previously emailed to his office.

However Arul only responded to 10 out of 21 non-exhaustive questions sent by KiniBiz, citing time constraints due to a number of media commitments on top of acquainting himself with his new role.

While his office initially asked KiniBiz to specify which 10 questions require more urgency, KiniBiz left the selection for Arul to decide. The company had also promised to arrange for a face-to-face interview with KiniBiz “as soon as possible”.

His response is reproduced below in full followed by the remaining unanswered 11 questions, which among others queried the mispricing of 1MDB’s bonds, the obscurity of the fund management firm in charge of its billions in the Cayman Islands as well as why 1MDB engaged Goldman Sachs for advice despite the latter’s controversies and existing expertise among local banks.

On fighting fires

KiniBiz: What are the biggest fires you see at 1MDB at the moment?

Arul Kanda

Arul: I think the biggest challenge facing the company at the moment is a cosmetic one, by which I mean the negative perceptions that have been allowed to build up around the company. There has been an enormous amount of speculation around 1MDB, often consisting of unfounded allegations, and it is quite clear that these haven’t been addressed as effectively as they should have in the past.

Unfortunately, this has led some to question the company’s levels of transparency, but I hope our efforts to engage in a more frank and constructive dialogue, than has perhaps been the case in the past, is reflective of our commitment to being more open.

Beyond this, I am currently in the midst of conducting a thorough and analytical strategic review of the business. This should allow us to develop a greater understanding of our strengths and weaknesses, and will help us identify the challenges that need to be addressed.

Whilst it is still early days, from what I have seen thus far, I think there are measures we can take to extract greater value from our assets as well as manage our finances in a more efficient way.

KiniBiz: There are conflicting views on whether the situation at 1MDB is alright or extremely worrying. What is your take on the situation at 1MDB upon assuming your new role?

Arul: Every company faces challenges from time to time. In fact, I have yet to come across
a company that hasn’t faced challenges at some point. In that vein, if someone were to ask me whether this is a challenging time for the company, I would have to say yes. However, I think the bigger question is how the company responds to these challenges and, indeed, whether it has the ability to overcome them. To this, my answer would also be an unequivocal yes.

On high interest rates and Cayman Islands

KiniBiz: Why did 1MDB pay such high fees for its loans?

Arul: I believe this is a point the Chairman of our Board of Directors has made in the past
but, like any business, it is in 1MDB’s interests to secure the lowest rate of interest and finance costs when taking out a loan.

In certain instances, the company may have incurred fees that were towards the higher end of the market rate, but it is important to understand that there is no one size fits all solution when it comes to raising debt on the financial markets: What applies today needn’t have applied three years ago, what applies to another company needn’t apply to 1MDB, and vice versa.

The fact of the matter is that a number of factors determine the finance costs and the interest rate applied to a loan or bond issuance. These include the length of maturity, whether the loans are underwritten or guaranteed, macro-economic factors, and many more.

The benefit of hindsight makes it very easy to criticise decisions made in the past, but I’m sure that at that time, the decision made by the company was one that that it believed served its best interests.