How does selling energy assets save 1MDB billions, asks Dr Mahathir

Tun Dr Mahathir Mohamad today questioned how 1Malaysia Development Berhad (1MDB) was able to reduce its debts through the sale of energy assets to China General Nuclear Power Corp (CGN Group), given the depreciation of the ringgit. The former prime minister wrote on his blog that the ringgit was at RM3.2 against the US dollar when 1MDB first purchased the power plants. When sold, the ringgit was RM4.2 against the dollar, he said. “If the money borrowed by 1MDB is in ringgit, the loss would be minimal. But if 1MDB had borrowed in US dollars, it stands to lose RM1 for every dollar borrowed. “In other words what 1MDB gets from the sale would not be able to pay fully the debts in US$ raised by 1MDB,” said Dr Mahathir. 1MDB, Edra Global Energy Berhad and its subsidiaries on Monday sealed a RM9.83 billion share sale and purchase deal with CGN Group. The sale is for 1MDB’s ownership in all its energy assets: Edra Solar Sdn Bhd, Edra Energy Sdn Bhd, Powertek Energy Sdn Bhd, Jimah Teknik Sdn Bhd, Jimah O&M Sdn Bhd, Mastika Lagenda Sdn Bhd and Tiara Tanah Sdn Bhd. The Chinese power firm will pay, in cash, an equity value of RM9.83 billion and assume all the debts and cash of the power assets, based on a valuation date as at March 31. The transaction is expected to be completed in February 2016. 1MDB president and group executive director Arul Kanda Kandasamy said the sale of equities in Edra Global Energy would reduce 1MDB's debts between RM16 and RM18 billion. “Having sold Edra for RM9.83 billion, how does this reduce 1MDB debts between RM16 and RM18 billion? “Again considering the depreciation of the ringgit, how will the debts in US dollars be reduced?" said Dr Mahathir today. He also disputed Arul Kanda's statement that the purchase “brings a significant foreign direct investment commitment to Malaysia”. “The money brought in would go out to pay foreign debts. And the amount going out would be far more than the inflow. Does not sound like FDI (foreign direct investment) to me,” said Dr Mahathir. He also urged Putrajaya to explain whether it allowed the full repatriation of the plants' profit to Malaysia. He said China only permitted repatriation in the form of export, not cash. “How much control will the government have over a foreign-owned utility? Price-fixing which may cause a loss to the company may result in subsidy by the government,” said Dr Mahathir. He also asked whether Petronas would be selling gas to the power plants, and at what price. – June 28, 2015.