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Fixing the finances of 1MDB: the process so far

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by April 13, 2016 General

The Tun Razak Exchange financial district, or TRX, is being built on 70 acres of land near the Petronas Twin Towers in downtown Kuala Lumpur. — Reuters picThe Tun Razak Exchange financial district, or TRX, is being built on 70 acres of land near the Petronas Twin Towers in downtown Kuala Lumpur. — Reuters picKUALA LUMPUR, April 13 — It’s been more than a year since state investment fund 1Malaysia Development Bhd (1MDB), at the centre of multiple probes into its finances, announced plans to sell assets and pare debt. Its borrowings then ballooned to over RM50 billion as of January.

1MDB has said it won’t make new investments or undertake projects once it clears some existing deals. Set up by the government in 2009 to build infrastructure with borrowed money, it has drawn political criticism and almost failed to repay loans.

Global investigators are looking into possible money laundering and embezzlement at the company, whose advisery board is chaired by Prime Minister Datuk Seri Najib Razak. Here’s a snapshot of where 1MDB is at in getting its finances in order:

Power projects

1MDB faced cash flow problems in 2014 after a planned initial public offering of energy unit Edra Global Energy was delayed amid unfavourable market conditions. The plan was later canceled and the fund completed the sale of Edra to China General Nuclear Power Corp for RM9.83 billion in March.

In 2014, 1MDB won a bid with Japan’s Mitsui & Co to build a RM11 billion coal-fired power plant in Malaysia, known as Project 3B. It transferred the project to state producer Tenaga Nasional Bhd in June as it lacked the capacity to take on a further RM8 billion of debt.

Land deal

The Tun Razak Exchange financial district, or TRX, is being built on 70 acres of land near the Petronas Twin Towers in downtown Kuala Lumpur. Named after Najib’s father, who was the country’s second prime minister, the development has a projected sales value of RM40 billion.

So far, about RM1 billion of land has been offloaded, including a controversial sale to Lembaga Tabung Haji, the national Hajj pilgrims fund. Najib ordered Tabung Haji to sell the plot just days after the purchase was disclosed, following protests and a public outcry on social media.

Bandar Malaysia

Bandar Malaysia is a 486-acre mixed-use project that will include a terminal for the proposed high-speed train to Singapore. It has a projected sales value of RM150 billion.

1MDB has sold off 60 per cent of the township to a consortium of China Railway Engineering Corp and developer Iskandar Waterfront Holdings for RM7.41 billion. China Railway in March announced a further US$2 billion (RM7.7 billion) investment in Bandar Malaysia.

Debt, accounts

In May 2015, Abu Dhabi’s International Petroleum Investment Co entered an agreement to provide 1MDB with US$1 billion to settle some of its liabilities in exchange for a transfer of assets. IPIC said this week it isn’t linked to a company that received US$3.5 billion of 1MDB funds, and it’s unclear if that development will affect the pact.

1MDB has been allowed to extend the submission of its audited accounts for the year ended March 2015 — due at the end of September last year—by 12 months.

The fund said in a statement yesterday it had repaid all short-term debt and bank debt, leaving it with RM2.3 billion in the bank. 1MDB will be a holding company with no operations once the rationalisation process is over, President Arul Kanda said in an interview last month.

Financial markets

Foreign investors pulled RM30.6 billion from stocks and bonds in 2015 as the currency fell to a 17-year low, in part amid concerns about political risk related to Najib and 1MDB. This year, helped by a recovery in oil prices, the ringgit is Asia’s second — best performer with a 10.6 per cent gain against the US dollar. The currency last month appreciated beyond 4 a dollar for the first time since August and the cost to insure the nation’s debt has fallen from January, the peak for the year so far.

Investigations

Even as it winds down some operations, 1MDB’s legal troubles may not be over. There are probes reported in at least ten countries related to 1MDB, or on companies and individuals linked to it.

A bipartisan Malaysian parliamentary committee this month identified at least US$4.2 billion of unauthorised or unverified transactions and recommended former chief executive officer Shahrol Halmi and other managers be investigated.

In January the Swiss Attorney General’s office said a probe of 1MDB revealed “serious indications” that about US$4 billion may have been misappropriated from Malaysian state companies. It said this week that it’s investigating two former U.A.E. public officials for fraud, criminal mismanagement, bribery and money laundering. The pair handled Abu Dhabi sovereign wealth funds that guaranteed bonds issued to finance 1MDB’s investment in power plants.

Singapore authorities said they had seized a “large number” of bank accounts in connection with 1MDB and possible money-laundering carried out in the island nation. The US Justice Department is investigating if funds were embezzled from 1MDB, according to people familiar with the matter. 1MDB has consistently denied wrongdoing. — Bloomberg

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