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1MDB's RM11 billion burden... Posted: 02 Jun 2014 11:01 AM PDT I believe Prime Minister Najib Tun Razak or his subordinates at the Finance Ministry should come up with a good answer - or even a rebuttal - to this news about IMDB (1Malaysia Development Berhad) struggling under the burden of RM11 billion in borrowed money. Since PM chairs its advisory board, he better takes the liberty to explain the truth. The picture painted by Reuters and some 'smart ass' is not in favor of the ruling and benevolent government. SINGAPORE/HONG KONG, June 2 (Reuters) - Lurking beneath Malaysia's solid investment-grade sovereign rating is a risk posed by a $14 billion investment fund that is not even generating enough cash from operations to cover interest costs. Regarded as a cross between a sovereign wealth fund and a private investment vehicle, with Prime Minister Najib Razak chairing its advisory board, 1Malaysia Development Berhad (1MDB) is struggling under the burden of $11 billion in borrowed money. The government says it only guarantees around 14 percent of the debt. The investment community assumes it would provide more if needed, and it is the potential strain on Malaysia's debt position from these contingent liabilities that raises concern. "We don't know how well 1MDB is doing," said Christian de Guzman, senior analyst of sovereign risk group at ratings agency Moody's Investors Service. "It does pose a risk in terms of the amount of borrowing they have made over the past few years." Controversy has dogged 1MDB almost since it was first set up months after Najib came to power in 2009, and used for funding projects that form part of his Economic Transformation Program. Critics have questioned its investment choices, the size of its debt, $2.25 billion parked in a Cayman Island fund, hundreds of millions of dollars of revenue earned by Goldman Sachs for handling its bond issues, delays in its accounts, changes of auditors, and a perceived lack of transparency. A $1.9 billion bridging loan that fell due in November has been rolled over twice, most recently two weeks ago, in order to give 1MDB more time to launch a $2 billion initial public offering that would reduce debt incurred buying 15 power plants. In a statement published on May 23, 1MDB said the IPO for its power division will take place in the second half of this year. In 2013, 1MDB, with liabilities of more than $13 billion, generated cash flow of 860 million Malaysian ringgit ($267.75 million) from operations, far below the annual interest outgo of 1.62 billion. It would have made a 1.85 billion ringgit loss, but for a 2.7 billion ringgit revaluation of its property portfolio. (http://link.reuters.com/vuc59v) I am puzzled why people at the PMO and 1MDB did not respond to Reuters' request for some good comments. Deputy Finance Minister Ahmad Maslan - the 'smart guy' who knows everything - could lend PM a hand by providing Malaysians an answer. We need to clear the air and provide some 'wash ups' to the country's economic image. 1MDB defended itself in a statement released in February, saying that its power assets had strong growth potential. "All this points to a high value proposition that can be expected to stimulate markets and bring significant FDI and cash profits to the shareholder - the Government of Malaysia," it said. Malaysia's debt-to-GDP ratio stood at 53.8 percent at the end of 2013, central bank data shows, up sharply from 43 percent in 2008 and close to an official debt ceiling of 55 percent, beyond which the government must seek parliamentary approval. Contingent liabilities, however, stood at 15.9 percent of GDP, up from 9 percent in 2008, bringing total government and government-backed debt to 69.7 percent of the economy, and the off-budget character of 1MDB raises questions. 1MDB is a strategic development company, wholly owned by the government. It was established to drive strategic initiatives for long-term economic development for the country by forging global partnerships and promoting foreign direct investment. It is fair that PMO provides a good and tangible answer to the news...the soonest the better!

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