Guan Eng: 1MDB bankrupt without federal loan

Govt must come clean about company's problems to restore confidence in ringgit and stock exchange.

GEORGE TOWN: The troubled government-owned 1Malaysia Development Bhd would have been bankrupt if the federal government had not extended a RM950 million loan, DAP secretary-general Lim Guan Eng said today.

He said the government should come clean about the company’s problems, lest it further affect the financial markets, pointing out that Bursa Malaysia was the worst-performing stock exchange in Asia.

Malaysia’s credit ratings might be in further jeopardy if 1MDB unravelled and defaulted on its debts, he said.

“Itt is crucial that 1MDB and the Finance Ministry come clean on the whole scandal so that everyone knows the true cost should a worst-case scenario happens,” he said in a statement today.

Criticising second finance minister Ahmad Husni Hanadzlah for insisting that the company was merely having a short-term cash flow problem, Lim pointed out that in basic accounting, bankruptcy was caused by not having enough cash to pay off debts.

“Many companies have gone bust because they are unable to meet their short-term cash obligations despite having billions in assets,” he said.

He said 1MDB would hurt Malaysia’s financial capital markets and lead to further falls in the value of the ringgit if goverment leaders continued to be in denial about the company’s problems.

Without the standby credit, 1MDB would have been insolvent and hence bankrupt, he said.

Lim said the minister had contradicted himself, first denying that 1MDB was a failed company, then telling Parliament that 1MDB had a 17:1 gearing ratio, which measures debt against capital.