What’s new on the 1MDB Scandal: Financial Restructuring or Bailout?

May 31, 2015

What’s new on the 1MDB Scandal: Financial Restructuring or Bailout?

by Tony Pua@www.malaysiakini.com

tony-pua2MP SPEAKS: Second Finance Minister Ahmad Husni Hanadzlah announced on Friday that Tun Razak Exchange (TRX) and Bandar Malaysia will be “established as standalone companies, with full autonomy and accountability for their operational and financial performance”.

However he emphasised that “the Ministry of Finance (MOF) will remain a key shareholder in TRX and Bandar Malaysia”.

While the statement sounds rather innocuous as we see the disastrous 1MDB suffering from RM42 billion of debt being wound down, what does establishing these two properties as “stand alone companies” under the MOF actually imply? ‎By the natural logic of the statement, it would mean that the MOF would acquire the shares of the companies owning these assets – KLIFD Sdn Bhd and Bandar Malaysia Sdn Bhd respectively.

On top of that, we are made to understand that the motive behind the action is to relieve 1MDB of its overwhelming debt burden. If we were to put two and two together, we can only deduce that the government will assume the debts arising from these two assets, and perhaps even pay 1MDB more based on their revalued and inflated asset prices.

Hence the plan to make TRX and Bandar Malaysia independent entities is in actual fact nothing innocuous at all. Instead it is a blatant attempt to bail out 1MDB with billions of ringgit of taxpayers funds!‎

Paying revalued prices?

As at 31 March 2014, the 70 acres Tun Razak Exchange land belonging to KLIFD Sdn Bhd has been revalued to RM2.7 billion. [1]  It is uncertain if the land has been pledged as a collateral for any loans taken by its parent companies.

At the same time, the 495 acres Sg Besi military airbase land (right) sold to Bandar Malaysia Sdn Bhd has been revalued to RM4.29 billion [2] while the property has been collateralised for a RM2.4 billion loan [3].

In addition, the federal government has also given a guarantee to 1MDB Real Estate Sdn Bhd to raise a RM800 million [4] bond to fund the airbase relocation.

If the government is to assume all the liabilities of the 2 companies, it would cost us RM3.2 billion, before even taking into consideration other contingent liabilities such as payments to Lembaga Tabung Angkatan Tentera (LTAT) for the RM2.1 billion relocation contract.

However, if the government is even more generous, the taxpayers might have to fork out a whopping RM7 billion based on the “revalued” asset prices of these properties. If, on the other hand, the government decided to acquire TRX and Bandar Malaysia at their revalued asset prices of RM7 billion and still relieve 1MDB of their associated loans of RM3.2 billion, then Malaysians will be forking out a total of RM10.2 billion just for these transactions alone.

Pay them cost only

Such a move will be a massive travesty because the federal government sold these 2 properties to 1MDB for only RM194 million and RM1.69 billion respectively, totalling less than RM1.9 billion. If we were to pay the inflated RM7 billion or worse, RM10.2 billion to buy back these properties from 1MDB after only selling these land to the company at bargain basement prices less than 4 years ago, it would be nothing short of a daylight robbery.

It would only be fair for MOF to reimburse 1MDB only for the cost which have been Ahmad-Husni-Hanadzlahincurred for the development of the land, amounting to less than RM200 million to date as well as the cost of the land – RM1.9 billion.

Any amounts in excess of the above would mean Malaysians have been cheated into financing and bailing out the misadventures of 1MDB. We call upon Ahmad Husni Hanadzlah to explain transparently how the government intends to make TRX and Bandar Malaysia separate independent entities owned by the MOF.

[1] KLIFD Sdn Bhd financial statements 31 Mar 2014 p23
[2] Bandar Malaysia Sdn Bhd financial statements 31 Mar 2014 p24
[3] Bandar Malaysia Sdn Bhd financial statements 31 Mar 2014 p26-27
[4] 1MDB Real Estate Sdn Bhd financial statements 31 Mar 2014 p33-34

TONY PUA is DAP national publicity secretary and Petaling Jaya Utara MP.

5 thoughts on “What’s new on the 1MDB Scandal: Financial Restructuring or Bailout?

  1. Restructure is adviseable if it is viable otherwise wind up the company sell off all assets and pay all liabilities. There surely massive shortfall that should be made good by directors Of the company and PM . It is moralnya wrong for PM to force the country to pay billions ringgit Of shortfall since he himself signed undertakings letter without the consent Of the cabinet . Stop all this nonsense and Najib must resign and take full responsibility for blunder he has made….

  2. The Edge gives a good breakdown of where 1MDB money has gone its explains a lot why Najib & Co feels self-rigthous and the opposition and critics also smells blood and justified in relentless attacks on Najib & Co.

    The biggest hole it seems is some RM9-10b on interest, fees including discounts and fees to Goldman Sachs and others..

    The probably lost a couple more billions on Energy assets and real estate they paid too much for. Some RM15b is not clear what the status of its investments which appears complicated at the very least and can be risky but it appears mostly still in tact.

    So what exactly is Najib guilty of? Well idiocy is the the first and foremost – as Muhiyiddin puts it – trying to be much smarter than he really is with our money..There may be others including possible even CBT – likely even just careless ones – but the amounts involved compared to the major amounts would not be that big. 1MDB is a stupid idea, a bad plan and badly executed. It would have been disastrous given its high debt if not for the fact it has been bailed out with cheap real estate that could and should have been better used.

    So at the crux of the problem is that firstly, Mahathir is right – Najib is poor leader but Najib can justify his stance and hold on to power – if he used the old standards of Mahathir era poor standards as a yardstick.

    The issue of 1MDB is not whether Najib did any great wrong or viable or can be saved. 1MDB should never have existed and also likely the sound idea is simply to break it up into more manageable pieces and cut the losses first before anything else. It proves Najib is dumb and that is why Najib will not resign because he can’t admit it to himself.

    But the fact is Najib is also proven he should go – his standard is just poor and not good enough. The things he has done and trying to do are full of conflict of interest and cost the country at least tens of billions if not more.. What he did and STILL trying to salvage at this stage – its driven by over-entitled self-righteousness NOT higher standards.

    The rest is politics. If CBT or mismangement is proven, its means to the end, the amounts would be at best a couple of billions if that compared to the tens of billions already lost and at risk. Those trying to help him because they think Najib did no great wrong – get another job, this country do not want this kind of sycophantic career making anymore and they need better than what Najib or they have to offer..

  3. So why transfer US700m or more into a company which has no connection whatsoever with 1MDB’s business and controlled by Jho Low who according to Najib himself had nothing whatsoever to do with 1MDB?

    Just answer this question first.

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