1MDB SHOCKER: Najib's brainchild fund seeking THIRD extension for overdue RM2 bil loan

1Malaysia Development Bhd (1MDB) is holding Malaysian banks hostage by seeking a third extension for its overdue RM2 billion loan

Bloomberg[1] yesterday reported that “1MDB is planning to seek another one-month extension” on its RM2 billion loan “to give it more time to sell a stake in its energy unit”.

This news is shocking as 1MDB has already missed two repayment deadlines for a RM2 billion debt in November and December 2014. Even this RM2 billion loan itself is part of a rescheduled and restructured debt it couldn’t pay in November 2013.

In fact, the Edge Financial Daily had reported that even Bank Negara Malaysia (BNM) has summoned the key executives of 1MDB over the issue and warned them of dire consequences should they fail to meet the next deadline at the end of this month.

Hence the act of even seeking another extension to the loan, which is only a fraction of 1MDB’s RM42 billion debt, is an affront to BNM. 1MDB is also holding its bankers, in this case Maybank Bhd and RHB Bank, hostage as the banks will have little choice but to grant 1MDB a further extension to the loan.

It is completely unbecoming and irresponsible for 1MDB, a wholly-owned subsidiary of the Ministry of Finance to bully its financiers. At the same time, 1MDB’s delinquency threatens both the credit-worthiness of the Malaysian government and the stability of the Malaysian banking system.

The Bloomberg report claimed that “the state-owned investment company needs more time to repay the debt as it’s still in discussions with billionaire T. Ananda Krishnan, Malaysia’s second-richest person, said the people who asked not to be named as the process is private. Krishnan may excercise an option, granted when he sold energy assets to 1MDB in 2012, to buy part of the Edra Global Energy Bhd. unit, the people said”.

It is scandalous that the question of 1MDB’s ability to repay a RM2 billion debt now hinges entirely on whether Ananda Krishnan decides to exercise his options to acquire a stake in a 1MDB’s subsidiary. Firstly, 1MDB had overpaid Ananda Krishna with an RM8.5 billion acquisition of his power assets in 2012. Now Ananda holds the trump card to potentially buy a strategic stake in 1MDB’s energy division at a fire-sale price because 1MDB has a RM2 billion sword hanging over its head.

And the new Chief Executive Officer, Arul Kanda has the cheek to tell the media that 1MDB is a “responsible borrower”.

The above desperation then raises a bigger question – what happened to the US$1.1 billion (RM3.9 billion) of funds which Arul has announced as “redeemed” from its Cayman Islands investment on 13th January?

Why couldn’t 1MDB have repaid the RM2 billion loan with the proceeds of the redemption first to ease the pressure on 1MDB and leave the company in a stronger negotiating position with Ananda Krishnan?

The 1MDB debt crisis and its inability to resolve the meagre amount relative to its RM42 billion debt betrays the fact that the company is in serious financial trouble. Its assets are over-leveraged and illiquid while in all probability, 1MDB is also unable to exit its investments without incurring substantial losses.

As the Finance and Prime Minister, as well as the chairman of the Board of Advisors for 1MDB, Dato’ Seri Najib Razak can no longer hide behind the outlandish façade and rhetoric that 1MDB is financially strong when it has to reschedule its more RM2 billion debt repayment thrice. Instead, Dato’ Seri Najib must instruct a special audit of 1MDB by the Auditor-General or a reputable independent auditor to uncover its financial shenanigans.

Tony Pua is MP for PJ Utara