The Sh*t Really Piles Up : "fears prompted by “incomplete” documents "

This is from The Malay Mail Online.

German banks seek early repayment of 1MDB loan, could trigger default on RM42b debt
Wednesday May 13, 2015
 

KUALA LUMPUR, May 13 — Lenders spooked by the controversy surrounding 1MDB are contemplating demanding the full settlement of a US$975-million (RM3.6 billion) loan ahead of its due date in August, according to Singapore’s Business Times.

consortium led by Deutsche Bank could trigger cascading defaults on RM42 billion debt 

if they declare the firm to be delinquent.

consortium’s fears prompted by “incomplete” documents 1MDB provided 

rendering terms of loan unmet. 

This breach allows banks to rescind the loan ahead of the August due date.

loan secured via US$1.103 billion 1MDB said held by Brazen Sky unit in BSI Spore

“What was earlier tightly collateralised loan is now making banks nervous

banks and 1MDB currently in “intense negotiations” to prevent recall of loan 

BSI Singapore engaged lawyers - possible claims if 1MDB crisis worsens 

officer who handled 1MDB’s account has been put on “gardening leave

banks need to ensure legal representation is in place to defend their position. 

Rafizi Ramli warned 1MDB facing an “asteroid” RM3.6 billion loan expire in August. 

matches amount owed to consortium headed by Deutsche Bank Singapore.

Sarawak Report alleged Arul Kanda distributed falsified financial statements 

January Finance Ministry said 1MDB deposited US$1.103 billion into BSI S'pore in USD

Explaining funds not repatriated to Malaysia, Arul Kanda said used to service USD debt 

In March ..Auditor General and Public Accounts Committee to investigate 1MDB.

1MDB dogged by negative publicity over ..cash flow problems that saw it struggle to meet a RM2 billion loan payment.

- See more at: http://www.themalaymailonline.com/malaysia/article/german-banks-seek-early-repayment-of-1mdb-loan-could-trigger-default-on-rm4#sthash.UW8Wj7BQ.dpuf

My comments :  Kekawan, at times like these, we must recall the wisdom of the land we live in. Suka tak suka we live on the Tanah Melayu. It has a long culture, a long tradition and much accumulated wisdom.  

The Malay language says, ' Bangkai gajah bolehkah ditutup dengan nyiru? "

What the hell is a nyiru? Here is a picture :

 

This is a nyiru. When I was a child I would use this so many times to 'winnow' the little dead insects and small stones from rice before we cooked it. I am quite expert at using this. 

The Malay wisdom in that adage above says that you cannot use a nyiru to cover up a dead elephant.  

Unless of course you had a village full of UMNO members. Then they would only see the nyiru and not the huge elephant carcass.

Here is Standard 4 arithmetic. 

Hutang is RM42 billion. Interest say at 6% average means RM2.52 Billion interest payments ALONE every 12 months.

What is 1MDB's total revenue every year? Ada sampai RM1.0 Billion tak? 

But you dont pay interest from revenue. You pay interest from EBITDA = earnings before interest, taxes, depreciation allowances (am I right accountants?).

To put it simply kita bayar bunga bank daripada untung. Bukan daripada revenue atau pendapatan. 

From pendapatan, you must tolak gaji pekerja, sewa pejabat, COGS atau kos barang niaga etc. Tolak, tolak, tolak what is left over is called Gross Profit atau untung kasar. 

From this untung kasar you start paying interest, taxes etc. 

Lets say 1MDB is a super duper fantastic company and they make 20% profit margin. So kalau jualan atau pendapatan is RM1.0 beliyon, then 1MDB's untung kasar is RM200 million.

From this RM200 million, they must pay gaji staff, sewa pejabat, bank interest, taxes etc.

But their yearly interest is possibly RM2.52 BELIYON. 

So how much pendapatan or penjualan must 1MDB make every year to cover say RM2.52 BELIYON in interest alone?

Lets work backwards.  If 1MDB is a super duper business and they make a profit margin of 20% every year, then calculating backwards 

RM2520 / 20% = RM12.6 BELIYON 

Lets double check :

1MDB must make sales or revenue or pendapatan or jualan of RM12.6 BELIYON each year (and assuming their profit margin is 20%) then 20% x RM12.6 BELIYON = RM2.52 BELIYON.

This is a very simple calculation but it is ok.  

The question is does 1MDB make RM12.6 BELIYON sales or revenues a year?

What is their profit margin?

Now here is the real killer. How much real cash does this company make?  

Obviously not much because they are selling capital assets just to pay the interest. This is very very bad.

You pay interest from your daily business income. 

Imagine the makcik pisang goreng has to sell her stove and gas tank just to pay the interest.  That means the pisang is not gorenging lah.

But this new US$975 million (RM3.6 BELIYON) loan is quite the killer.  Talk is it has a 12 year tenure, it falls due in September or so and it carries a whopping 11% interest rate !!

11% x RM3.6 BELIYON = RM396 Million just interest alone.

So almost RM4.0 BELIYON is due in September ??

Gajah mesti mati.  Kena cari banyak nyiru ni.

Tambah lagi, the Singapore banks are governed by simple rules. Folks anywhere in the world, even in Transylvania, submitting fake documents or forged documents is just not the right thing to do. 

The Singapore Business Times says : 

"What seems troubling, sources say, is that the "securitisation document" for the loan has now been deemed "incomplete", as one of the covenants was not fulfilled. This essentially allows lenders to demand payment on the loan anytime before it becomes due at the end of August."

 

Folks, as a former banker let me tell you that if someone borrows RM3.6 BELIYON from a Bank and a "covenant" was not fulfilled then you take the Managing Director, the CEO and the entire Board of the Bank to the Singapore Harbour and drown them in the sea. You dont play play with RM3.6 BELIYON.

If the covenant is just a compliance issue then you just call the borrower and make sure they fulfill the covenant. 

But for the banks to panic and to ponder recalling the loan and declare an event of default is quite something else. It means the breach of the covenant is fatal. They cannot comply. Usually this means 'DUIT TAK ADA' (NO MONEY).

Or some type of fraud or malafide has taken place. 

Talk is the whole RM3.6 BELIYON loan plus interest of RM400 million is due. 

Excuse me. Just overheard a phone conversation.

'Hello. Hello Petronas? How much US Dollars do you have?"