Show us OUR money 1MDB

By admin-s Last updated Feb 26, 2015

Indeed, why does 1MDB even need to float its power assets to raise money when there should be some RM34 billion lying around the place? Where has it put the money from all its loans and bonds?

P. Gunasegaram, KiniBiz

Tiger is disappointed – terribly – with 1MDB’s strategic review which is not. As the first step to restoring confidence and turning it around Tiger challenges 1MDB to simply show us our money.

And so, 1Malaysia Development Bhd or 1MDB, our self-styled strategic development company, has concluded its strategic review process, led by its new president Arul Kanda, marking the occasion by issuing a press release on Feb 18, a day before Chinese New Year when things were winding down.

But looking at the details contained in the release, there is scant, if any, room for comfort, of which the main one is the assurance that no new investments will be made and no new debt will be raised except for refinancing/meeting existing liabilities. The company will instead “concentrate on its core businesses”.

But even here, one must view this statement with some, no, a lot of scepticism. Considering that its total liabilities amount to RM49 billion or 95% of total assets of RM51.4 billion, there is yet considerable room for refinancing and further questionable manoeuvring.

Put another way, 95% of assets are funded from other people’s money. It’s gearing level, if we assume that the current portion of liabilities arise out of borrowings as most of them do, is 2000% of shareholders funds. For most listed companies, alarm bells would start ringing at 200%. 1MDB is simply an unsustainable edifice erected almost totally on debt.

Surely that’s no way to be for our strategic development company whose effective cost of borrowing – at a time when interest rates were low – was close to 7% for much of its debt. Where can one put some RM49 billion to get a cash return of more than 7% or RM3.43 billion required just to pay interest charges, not to mention repayment of debt?

Even if 1MDB went out and bought RM49 billion worth of Malayan Banking shares with its high dividend yield (dividends paid as a percentage of market value) of some 5.8% historically, it will still be short by RM600 million.

What strategy is 1MDB employing to right this very wrong state of affairs that 1MDB had started with in 2009 and continued for the next five years, piling debt upon debt with no visible, solid assets to show except for the power assets owned by other Malaysians acquired at a price way above their market value at that time?