Shameful for 1MDB to borrow from Ananda Krishnan, says DAP
Putrajaya should be embarrassed that 1Malaysia Development Berhad (1MDB) had to resort to securing a loan from magnate T. Ananda Krishnan to pay off billions in overdue debts, the DAP said today.
Its national publicity secretary, Tony Pua, said such a “desperate” measure proved that no commercial lending institutions were willing to lend it money anymore.
"The news is absolutely disgraceful for 1MDB and a terrible embarrassment for the Malaysian government, that its sovereign 'investment fund' had to stoop so low as to depend on the goodwill of a local billionaire to temporarily settle its loans.
"This is despite the fact that 1MDB claimed that it had already fully 'redeemed' its controversial investment in Cayman Islands, amounting to US$1.1 billion, or RM3.9 billion, at the current favourable exchange rate," he said in a statement today.
Pua commented on 1MDB's statement on January 13 that the firm had fully redeemed the US$2.318 billion (RM8.42 billion) which the company invested in a Cayman Islands registered fund.
The Edge Financial Daily yesterday reported that Ananda Krishnan had firmed up an agreement to loan 1MDB as much as RM2 billion to help the firm settle its debt with Malayan Banking Bhd (Maybank) and RHB Bank Bhd due at the end of this month.
Sources told the daily that the loan was merely an interim measure.
“It (the loan) is more for 1MDB to clear this obstacle – the two banks – than anything else. The two (parties) are still looking at how to resolve the issue,” the sources said.
The RM2 billion loan was secured after Ananda Krishnan committed to inject the sum into Powertek Investment Holdings Sdn Bhd (PIH), which would enable PIH to pay the lenders.
But, the report said this route would have given Ananda Krishnan a majority stake in PIH, based on today’s valuation. 1MDB would lose control of PIH, a prospect that was not politically tenable.
Pua (pic, left) said such terms could play to the billionaire’s favour, saying that 1MDB would be held hostage once the deal goes through.
He said 1MDB could only raise US$3.5 billion of 10-year bonds to fund the acquisitions of independent power producers Tanjong Energy and Genting Sanyen with the corporate guarantee provided by International Petroleum Investment Company (IPIC) which is a wholly-owned investment vehicle of the Abu Dhabi government.
"Despite having to price these bonds at an expensive 5.99%, the 'guarantee' from IPIC came with an expensive price tag," he added.
Pua said the fund had to dock 40% of the loan with IPIC as security deposit, amounting to RM4.47 billion which was recorded in the March 2014 financial statements.
"Effectively, this means that 1MDB is pay 5.99% interest on a US$3.5 billion loan despite having access to only 60% of the funds or US$2.1 billion.
"Secondly, 1MDB had to offer the option for IPIC to acquire up to 49% equity interest in 1MDB’s acquired energy subsidiaries in order to secure the guarantee.
"The 49% equity interest is worth at least US$250 million, the amount 1MDB paid to buy back these options based on the latest financial statement as at March 2014," he added.
Pua said taking into account these funds, 1MDB's subsidiaries have taken a US$3.5 billion loan with an "unheard" of 13.98% effective interest.
He said 1MDB must disclose the loan with Ananda Krishnan as it is a wholly-owned subsidiary of the Finance Ministry.
He added that its new CEO, Arul Kanda, must keep to his word that public scrutiny was a good thing that will only strengthen the company and its governance. – January 31, 2015.
