Arul: No government bailout for 1MDB unlike MAS, Proton

(Malay Mail Online) – State-owned firm 1Malaysia Development Berhad (1MDB) was not bailed out by the government like in the cases of national carrier Malaysian Airline System Bhd (MAS) or national carmaker Proton, its chief executive officer Arul Kanda Kandasamy has said.

Insisting that there was “no bailout” for 1MDB, Arul said this bailout issue was only relevant a year ago, arguing that the government-owned firm will now have enough funds coming in from various deals and will not have to take additional money from Putrajaya.

“Now that we have legally binding agreements, for the Ipic swap, Edra sale and Bandar Malaysia, we don’t need to take any money from the government. There is no question about a bailout.

“And I contrast this with other companies. Most recently, Malaysian Airline System Bhd, or prior to this Proton, or Perwaja, or Bank Bumiputra, which required billions and billions of equity injection; we have not had to do that,” he was quoted as saying in a six-page interview with financial weekly The Edge published today.

According to Arul, 1MDB has “not cost the country money”, as it had not taken any money from the government apart from the original equity of RM1 million and a RM950 million loan — in the form of standby credit facility — that the company will need to repay.

During the interview, Arul said that it would have been a “perfectly normal and reasonable business decision” for the government as 1MDB’s shareholder to pump in more money to support the company and assist its recovery, noting that additional equity injection at a later stage would have been expected when only RM1 million was put in initially.

But it was not possible for the government to inject more capital into 1MDB last year to stabilise the company due to “political considerations at the time” following articles from Sarawak Report and The Edge and subsequent investigations after the Auditor-General was directed to look into the firm, Arul said.

Arul said 1MDB then had to resolve its own problems and it changed its initial strategic review plans to start a rationalisation plan, where it started disposing its assets by selling major plots of land in its planned Tun Razak Exchange (TRX) and stake in the Bandar Malaysia development and also selling its power unit Edra Energy Global Bhd.

“My view is that, given all those, we had to do the best that we could. And the RM950 million will be repaid once the funds come in from the Edra sale, and all the other short-term debt.

“And from the Edra cash sale proceeds, we will have a surplus of over RM2.5 billion. More than enough cash to finish our infrastructure in TRX, meet other interest payments, pending monetisation of other assets,” he said.

Responding to criticism that the money raised by 1MDB from its sale of assets could have gone to national coffers instead of being used to pay off the company’s debts, Arul countered however that the debt which the company took on in acquiring these assets did not have to be borne by the government.

“It is a zero-sum game. You aren’t talking about the other side of the equation. The fact that 1MDB took on debt frees up the government to do other things with its money,” he said.

He cited as example that 1MDB had to take on a RM1.6 billion debt in the form of an Islamic bond to fulfil its RM2.7 billion obligation of building new bases in place of those at the land where the planned Bandar Malaysia is located.

Although acknowledging that 1MDB had bought land at a nominal price from the government, he pointed out that the firm took on the liability to relocate the government assets at the Bandar Malaysia project site and also the construction of the TRX.

It was always the plan for 1MDB’s debt repayments to come from the sale of its assets in the Bandar Malaysia and TRX project, he said.

“Edra was never our asset to start with anyway. It was a purely private sector asset that 1MDB purchased. So where is the loss in that respect?” he asked.

Arul said in the interview with The Edge that 1MDb has come out of “crisis mode” and is now on a sustainable path to resolving its debts — which was previously reported to be almost RM42 billion at the end of its 2014 financial year.

On December 31, Prime Minister Datuk Seri Najib Razak said the government-owned 1MDB had entered into sales deals that will see an overwhelming majority of its debts or approximately RM40.4 billion of it reduced.