Pua: Desperate 1MDB seeking ‘loan sharks’

The Middle East lenders fleeced 1MDB previously and aggravated its debt burden.

KUALA LUMPUR: Despite the less than pleasant experience with the International Petroleum Investment Company (IPIC) and its subsidiary Aabar Investments (Aabar), the Second Finance Minister Ahmad Husni Hanadzlah has proudly announced that IPIC is extending another USD1 billion to assist 1MDB to repay part of its mountain of debt.

Malaysians are so embarrassed that the Barisan Nasional (BN) Government has no shame and had to resort to begging for a loan and/or favour from a foreign government, said Petaling Jaya Utara MP Tony Pua. “This was because no other financial institution was willing to lend to 1MDB.”

Pua asked Ahmad Husni Hanadzlah to immediately provide full disclosure on what the USD1 billion ‘assistance’ was going to cost 1MDB, the Malaysian Government and the long-suffering taxpayers.

If not, he added, it will be seen that Husni has become complicit in the entire multi-billion ringgit shenanigans in Malaysia’s heist of the century.

Husni failed to elaborate, lamented Pua, leaving Malaysians speculating and fearing for the worse. “The USD1 billion payment would not have come for free, and would have had plenty of conditions attached to it,” said Pua who is also DAP National Publicity Secretary.

“The Malaysian Ministry of Finance has gotten so desperate that it has to beg the investment arm of a foreign country for a USD1 billion loan to repay the debts of its own subsidiary.”

It was only in Malaysia that a Minister of Finance could be “pleased to announce” that the Ministry’s wholly-owned insolvent subsidiary had managed to secure a USD1 billion loan from the investment arm of a foreign country, Abu Dhabi, to repay its own debts, said Pua.

Questions arise: What are the conditions? Did 1MDB sacrifice even more of Malaysians’ future taxpayers’ funds to secure this desperate loan?

This isn’t the first time IPIC has come to the “rescue” of 1MDB, recalled Pua.

The details follow:

When 1MDB needed to raise funds in 2012 to acquire the independent power producers (IPPs), Tanjong Power and Genting Sanyen, the company asked IPIC to provide a guarantee in order to raise the funds via two bond issues, each worth USD1.75 billion. The guarantee was necessary despite the fact that 1MDB priced the bonds very attractively at 5.99 per cent coupon rate.

This guarantee was certainly no “friendly gesture” on the part of IPIC or the Abu Dhabi Government, but instead came at an exorbitant price to 1MDB. The extraordinary conditions attached contributed in no small way to the massive annual interest bill and cash flow crunch for 1MDB.

Firstly, said Pua, 1MDB had to dock approximately 40 per cent of the loan with IPIC as security deposit. This amounted to RM4.47 billion (USD1.4 billion) as disclosed in the March 2014 financial statements. “Effectively, this means that 1MDB was paying 5.99 per cent interest on a USD3.5 billion loan despite having access to only 60 per cent of the funds or USD2.1 billion.”

Secondly, he said, 1MDB had to offer the option for Aabar to acquire up to 49 per cent equity interest in Powertek Investment Holdings (PIH) and 1MDB Energy (Langat), the holding companies for the acquired IPPs, in order to secure the guarantee.

Based on the latest financial statements, 1MDB disclosed that its subsidiary 1MDB Energy Holdings Limited has taken a bridging loan facility of USD250 million in May 2014 to buy back these options granted to Aabar Investments.

“This represents compensation to Aabar although the final settlement consideration isn’t yet known,” said Pua. “In fact, it has been speculated that the options compensation might be as high as an incredulous USD1 billion based on analysis by The Edge Weekly.”

Effectively, continued Pua, this USD250 million (or more) represents a fee paid to IPIC in order to secure its corporate guarantee for 1MDB subsidiaries to raise USD3.5 billion, or at least 7.1 per cent of the funds raised!

To put it bluntly, stressed Pua, 1MDB might as well have gone to the loan sharks to raise the funds. “It is mind-boggling why a 100 per cent owned subsidiary of the Ministry of Finance needed to become so desperate in paying such outrageous fees, costs and terms in order to secure financing for its activities back in 2012.”

Husni announced that “1MDB had entered into a binding agreement with the International IPIC and Aabar where IPIC will make a payment of USD1 billion, on or before 4 June 2015.

“This USD1 billion payment will be used to repay a USD975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders,” according to the Second Finance Minister’s statement.