1Malaysia Development Berhad's (1MDB) failure to publicly list its energy companies was the biggest contributor to the strategic investment arm's cash flow problems, Arul Kanda Kandasamy said today.
The 1MDB president said the company had acquired debt to generate money and buy assets, but it was unable to service the debts due to the delayed initial public offering (IPO) listing.
"Debts were the basis for 1MDB. When you use debts, there is a need to pay back the debts and service the principle (payments).
“If you do not meet debt repayments, the repercussions are very high. There was a cash flow mismatch because of the failed IPO. The company faced a big challenge to pay back the debt," Arul Kanda told a press conference in Kuala Lumpur.
He said the IPOs failed to happen due to "internal and external factors", and the debt had piled up due to the RM2.4 billion interest it had to pay each year.
He added that the internal factor arose from the need to "harmonise the platforms" across all three energy companies it acquired, and the external factor was the "significant brickbat and criticism" that came "almost exclusively" from the opposition.
But Arul Kanda assured that 1MDB was taking steps to sell its assets in order to reduce its RM42 billion debt.
"This is a business problem, a business challenge, and, frankly, it can happen to many businesses. It isn't unique to 1MDB alone," he said of the cash flow problem.
"1MDB was based on a good idea, it was unique, but because of business challenges, because the IPO didn't happen, and because we had a cash flow problem."
When asked why it had resorted to raising funds through debts, Arul Kanda said it "creates a certain discipline" in the company, and allowed the government to use its funds for other purposes, such as development for the people. – ANN
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