1MDB financials not sustainable, admits MoF

By admin-s On Mar 13, 2015

(The Edge Markets) The Ministry of Finance (MoF) has confirmed that the Cabinet did give approval for the RM950 million as standing credit to debt-laden 1Malaysia Development Bhd (1MDB), which the opposition deemed as a form of bailout.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah formally acknowledged for the first time that 1MDB is in an “unsustainable” financial position with a “cash flow problem and a high net gearing of 17 times”.

However, he disputed a news report that the federal government had “loaned” 1MDB RM970 million, calling it “standby credit” instead and that the figure is lower at RM950 million.

“The amount is not RM970 million [as reported by Singapore’s Business Times], but the sum we gave it (1MDB) in the form of standing credit is RM950 million, of which RM600 million has been used,” Ahmad Husni said in a reply to Pandan Member of Parliament (MP) Rafizi Ramli in Parliament yesterday.

He added that the company’s cash flow problems would be solved with an initial public offering (IPO), which had been postponed twice.

“The financial situation of 1MDB is not sustainable. If we look at its net worth and borrowings, its gearing stands at 17 times. If you go to any financial analyst or banker, they would say it is not sustainable, which is why 1MDB is in the process of carrying out an IPO to narrow its net gearing to three times,” Ahmad Husni said.

“The company (1MDB) is [also] facing problems with its cash flow. This (IPO) needs to be implemented as a short-term measure to refinance the existing debt. After the IPO, it will be smooth for 1MDB,” he added.

Ahmad Husni expects the IPO to be completed by September this year, which is expected to raise RM15 billion. On March 4 this year, 1MDB said it will resubmit its application to list its power arm, Edra Global Energy Bhd, to the Securities Commission Malaysia (SC).

On the remaining debt totalling some RM26 billion to be settled by 1MDB, Ahmad Husni said it will be done through monetising 1MDB’s land bank in Penang and Pulau Indah, Selangor, as well as future earnings from its iconic property projects namely the Tun Razak Exchange (TRX) and Bandar Malaysia, which have a gross development value (GDV) of RM40 billion and RM150 billion respectively.