By Malaysiakini
Finance Ministry-owned 1Malaysia Development Bhd has come in defence of its finances by pointing out that only a paltry RM1 million of its multi-billion ringgit portfolio came from the government.
The firm chaired by Prime Minister Najib Abdul Razak is under fire for its significant debt levels, part of which are government-guaranteed.
In a statement, its director Lodin Wok Kamaruddin said that the only funding it received from the Finance Ministry was at its time of inception in the form of equity worth RM1 million.
The rest, he said, was secured through international fundraising exercises.
Lodin Wok Kamaruddin
“Given that 1MDB does not receiving any funding from the government, it is therefore simply not true to claim that the company is investing or worse, wasting, the state’s – or the people’s – money,” he said in a statement.
He also justified the parking of more than US$2 billion (RM7 billion) in tax haven Cayman Islands, which critics say is to hide from financial scrutiny.
The funds were placed there initially after a deal with little-known Saudi Arabian company PetroSaudi went sour, he said, and 1MDB converted its investment in PetroSaudi into a loan.
The loan of US$2.4 billion (RM8.3 billion) was paid in full with a profit of US$488 million in 2013, but the funds could not be repatriated to Malaysia immediately due to currency fluctuations.
The funds were then invested in a 1MDB subsidiary registered in the Cayman Islands, he said.
“However, the company has already redeemed a significant portion, US$1.4 billion (RM4.9 billion), of the fund and expects to redeem the remaining amount in the coming months,” he said.
He did not say why the joint-venture with PetroSaudi fell through or why 1MDB has a subsidiary registered in the Cayman Islands.
Nevertheless, he said there is nothing unusual about placing funds the Cayman Islands.
“Thousands of international blue-chip companies have funds regulated by the Cayman Monetary Authority, including over 200 Malaysian companies, many of which are household names,” he said.
Further, he said, 1MDB is not a sovereign wealth fund but rather a strategic development firm which invests in areas strategic to the nation.
“However, all of this debt is backed by solid assets,” he said.
‘We can pay our debts’
Citing 1MDB’s financial statements, business daily the Edge Financial Daily yesterday said 1MDB has been selling assets to keep up with debt repayments and other financing costs.
The Edge also reported that the weakening of the ringgit could add close to RM4 billion – how much it cost to build the KLIA2 – to 1MDB’s debt tab.
However, Lodin said that at RM51.4 billion as at financial year ending March 2014, 1MDB’s assets “comfortably exceeds” its debts of RM41.9 billion for the same period.
In fact, he said, the company had accumulated net assets of close to RM10 billion since its conception five years ago, not including potential benefits from its initial public offering of its energy assets.
He also said that it is unfair for critics to compare the interest rates it pays on its Islamic bond issued in 2009 to the Petronas is paying for a bond issued at the same time.
Petronas is paying 3.6% because its bond is only for RM100 million and had a tenure of three years, while 1MDB’s bond is for a 30-year period and is for a much higher amount of RM5 billion.
“As the Board of Directors, we welcome debate, and as a company that is wholly-owned by the Ministry of Finance – and by extension, the people – we believe that public scrutiny of 1MDB is a good thing, and will only serve to strengthen the company and its governance,” he said.
Below are Lodin’s rebuttal for other issues hounding 1MDB:
Overpaying for power assets
1MDB takes a long term view and was willing to pay more for the assets due to its social and economic impact on the country.
It paid RM1.7 billion for loss-making 1,400 megawatt coal-fired Jimah Energy Ventures (JEV) plant, when another government-linked company had eyed it for a significantly lower RM1 billion a few months before.
Overpaying for the Air Itam parcel of land
It is in a strategic area, with neighbouring parcels going for more than RM200 per square feet, higher than what 1MDB paid.
Given difficulty in finding land in prime areas in Penang, what 1MDB paid was “highly attractive”, he said.
Preferential treatment on power contracts
The 1MDB-Mitsui & Co joint venture won the bid for the 2,000 megawatt coal-fired power plant known as Project 3B fairly as the other bidder is inexperienced in coal plant operation.
This is why the other bidder was bumped off even though it offered levelised tariff of 25.12 sen per kilowatt per hour (kWh), “fractionally lower” than 1MDB-Mitsui’s 25.33sen/kWh.
1MDB has also won other bids fairly, like the gas fired plant in Prai where it offered the lowest overall package.
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