Rating before 1MDB gets RM3b injection

The Government should only invest further in the company if it’s above investment grade.

KUALA LUMPUR: The Federal Cabinet should ensure that 1Malaysia Development Berhad (1MDB) is rated before releasing the RM3 billion cash injection that the government-owned strategic investment company reportedly needs.

“The Government should only invest further in the company if it’s above investment grade,” said former Senator S. Ramakrishnan. “If 1MDB has done nothing wrong as claimed by the PM’s backers, why was the fund not rated by rating agencies which would be required before investing public funds?”

Ramakrishnan was commenting on reports that the Federal Cabinet had deferred approval of the RM3 billion cash injection. Other reports stated that the Federal Cabinet rejected an item in the minutes of the previous week which approved the cash injection.

He also noted that despite all the negative developments and publicity surrounding 1MDB, the Federal Cabinet hasn’t pressed the panic button and even maintains that “all the company’s dealings are above board”.

Even so, added Ramakrishnan, the Federal Cabinet needs a third party to rate 1MDB in order to dispel all the bad publicity and negative reporting. “An independent rating agency, giving its honest professional opinion, would dispel all aspersions.”

The former Senator has no illusions however.

The prognosis is not good considering that KPMG, the auditors, refused to continue with their services and was replaced by Deloitte. “1MDB is an accounting quagmire for any auditor.”

He doesn’t know how Prime Minister and Finance Minister Najib Abdul Razak, who has oversight on the 1MDB Board, can explain the many twists and turns in its large borrowings and opaque transactions.

“Within five years of operations, with little profits to show, the company has racked up RM42 billion in total debts. 1MDB is a serious contingent liability for the Federal Government at a difficult time.”

Public debt excluding 1MDB, he noted, is already at an all-time high of 55 per cent of the Gross Domestic Product (GDP).

1MDB has been in the news for all the wrong reasons, points out Ramakrishnan.

On paper, the company has enough assets to cover its debts.

In reality, these assets cannot be easily disposed for cash unless it’s at knocked down distress sale prices which would bring in very little. Meanwhile, its revenues are less than its operating expenses. This brings into question its ability to service its massive loans.

All this assumes that everything has been above board at the company.

But this doesn’t appear to have been the case judging from media reports on dubious transactions and monies being siphoned out amidst announcements by the company that certain funds were parked with an unknown fund in the Cayman Islands and brought back but with no sign that they entered the local banking system.

In the midst of all this, the company had to borrow to meet a debt repayment deadline. It appears that its credit standing was such that no financial institution would risk lending it another sen. One reason may be because no one knows what happened to the billions purportedly parked in the Cayman Islands.