My prediction about toxic 1MDB debts coming true, says PKR’s Rafizi

Pandan MP Rafizi Ramli says reports of a consortium of six international banks planning to seek an earlier settlement of a US$975 million loan to 1MDB show that the fund poses a huge systemic risk to the financial system. – The Malaysian Insider file pic, May 13, 2015.

A PKR lawmaker today expressed fear that his prediction about 1Malaysia Development Berhad's (1MDB) RM42 billion debt could cause a huge systemic risk to the financial system would become a reality.

Pandan MP Rafizi Ramli referred to reports that a consortium of six international banks, led by Deutsche Bank, were planning to seek an earlier settlement of a US$975 million (RM3.6 billion) loan four months before its due date. The loan is guaranteed by Putrajaya.

"If 1MDB fails to pay up its debt to the six international banks in the near future, it has, by law, failed to fulfilled payments for all RM42 billion of its loans," the PKR secretary-general said in a statement today.

"The RM42 billion debt also included bonds purchased by Lembaga Tabung Haji besides loans from local banks. The bonds are a huge amount and will have a massive impact on the nation's bond market.

"That means, my prediction that one day, 1MDB debts would carry a systemic risk to the financial system may come true now."

This, he said, was contrary to the assurances and guarantees by Barisan Nasional leaders, including Umno Youth chief Khairy Jamaluddin, who have all claimed that 1MDB did not pose any risks to the financial stability of the country.

Singapore's Business Times reported today that the six "jittery lenders" have turned "panicky" because the loan was secured by 1MDB's wholly owned Brazen Sky's US$1.103 billion – money which is currently being parked at Swiss private bank BSI Singapore bank.

The business daily, in quoting sources, said "securitisation document" for the loan was now deemed "incomplete", as one of the covenants was not fulfilled.

These meant lenders could demand for repayment from the state investment vehicle any time before its due date of end-August.

"What was earlier construed as a tightly collateralised loan is now making the banks nervous, given this controversy," the daily quoted an unnamed source as saying.

Yesterday, Rafizi, who is also PKR vice-president, said he had received information that the troubled 1MDB had listed its “questionable” account in BSI Bank Singapore as collateral.

Rafizi said that if this was true, 1MDB may have to resort to using public funds to meet the September payment deadline, since its account in BSI Bank reportedly had no actual cash.

On April 22, whistle-blower Sarawak Report said 1MDB’s account in BSI Bank merely contained “paper assets”, the “true value of which cannot be determined”.

“A loan as big as this would most definitely have collateral. The information I received is that the collateral for this loan is the funds in the BSI Singapore account, which was reported as being non-existent,” he had said.

Urging Prime Minister Datuk Seri Najib Razak to explain how 1MDB intended to service its RM3.6 billion loan by September, he said that sources told him the interest rate was at 11% – which meant the fund had to pay around RM4 billion in debt to the banks within four months.

“Before this, every time 1MDB had to repay its debts, the government was forced to inject money into 1MDB, or enter into a business transaction with it,” Rafizi said yesterday, citing the RM950 million of standby credit Putrajaya provided to 1MDB in March, as well as Lembaga Tabung Haji’s land deal with 1MDB last month.

Today, he again urged Najib to explain how 1MDB intended to pay off its RM3.6 billion debt.

"Seeing as how 1MDB's failure to fulfil the debts poses a huge risk to the country if it 'cross defaults' the the RM3.6 billion by these international banks, Datuk Seri Najib Razak must give an immediate statement on this," he added.

- TMI