Despite the continued political attacks and sabotage on Malaysia and 1MDB, I am confident that their 1MDB continued rationalization plans to recover its assets and become profitable remains on track
Lim Sian See
The extension of time given to 1MDB to make the 1st of two payments to IPIC has raised a lot of questions.
All in all, 1MDB has to pay a total of close to USD1.3 billion as part of the settlement which includes:
– repaying the USD1 billion that IPIC paid 1MDB in June 2015,
– a small interest on this USD1 billion advance over 2 years; and
– the bond coupon interest that IPIC had paid on behalf of 1MDB for the USD3.5 billion bonds guaranteed by IPIC when both parties went into dispute last year.
Delays in payments – with the agreement of both parties – are common in business. However, due to the international attention on 1MDB, the delays have become a concern.
Firstly, remember that this a delay, granted by IPIC – not a default.
Secondly, it is important to distinguish 1MDB from MoF when it comes to the settlement agreement as MoF has clearly said it expects 1MDB to settle its own problems – hence the delay.
For example, there was a bond issuance by the govt of RM2.5 billion that was opened for 3 days last week which the opposition maliciously slandered to say it is for paying 1MDB.
Due to the continued robust economic growth experienced by Malaysia despite global uncertainty and the return of foreign investors, there is a lot of liquidity (money) in the Malaysian system.
In just 3 days times, a total of RM4 billion of money was bid to take up RM2.5 billion of govt bonds – which is a measure of how much liquidity or money is held by Malaysian investors and funds. See Bond tender results: http://tinyurl.com/bnm-bonds
And plus, Malaysia’s debt-to-GDP ratio has dropped from as high as 54.5% to 52.7% in 2016. As at the end of March 2017, it further dropped to 50.2% – well below the 55% self-imposed limit.
Thus, if the govt wanted to borrow, there is ample room to do so but the govt is committed to the balanced budget target it set for itself.
It is not that MoF has no money to pay. It is that MoF does not want to pay on behalf of 1MDB as they do not want to give the impression that public funds are used to help settle 1MDB issues.
For IPIC to allow the extension of deadline, which includes a small daily interest on the delay, means that IPIC is confident that 1MDB can pay.
I suspect that the main issue causing this delay is the increased scrutiny on the monetization of the USD2.5 billion fund units as was announced in the April 2017 settlement.
Remember that these fund units were guaranteed by the real Aabar, a fully owned subsidiary of IPIC and the plan was for a company incorporated in the Seychelles which was tasled by IPIC to buy these units.
However, as pointed out by Tony Pua, the June 2017 Department of Justice (DoJ) second claim for seizure of assets had stated that the fund units may be worth less than what it is supposed to be – which implies fraud – could be the reason for the “technical” delay.
The June 2017 civil suit had the effect of throwing a spanner in the April 2017 settlement plans.
This had the effect of spooking regulators and banks – international and local – who are worried about their reputation and afraid to be heavily fined – will surely put a lot more attention to scrutinize this transaction and ask for various documentary proof.
All this will surely cause delays – which to 1MDB and the Malaysian Govt is a technical issue as funds from 1MDB’s monetization of the fund units are there – just not usable yet.
The govt is correct to allow 1MDB to solve its own issues.
Despite the continued political attacks and sabotage on Malaysia and 1MDB, I am confident that their 1MDB continued rationalization plans to recover its assets and become profitable remains on track.
This is the same conclusion that former Selangor MB Khalid Ibrahim had also reached last week after the briefing with PAS leader by 1MDB’s President Arul Kanda. Read what he says: http://www.malaysia-today.net/the-roundtable-discussion-wi…/