1Malaysia Development Berhad (1MDB): Amid mounting debt concerns, change in auditors triggers alarm

11
1922

Let’s take a quick look at the latest status of 1MDB, which appears laden with debt of RM8.4bn as at 31 March 2012 plus a reported additional RM22.7bn since then to finance the acquisition of power assets among other things.

Much of the new debt was used to finance the takeover of independent power producers at a steep price in 2012:
– 1MDB bought more than a dozen power plants from Ananda Krishnan’s Tanjung Energy (now Powertek) for RM8.5bn;
– It also bought 75 per cent of the Lim family’s Genting Sanyen Power (now Kuala Langat Power Plant) for RM2.3bn;
– Total outlay: RM10.8bn.

By looking at the cash flow streams and the internal rate of return of about 4 per cent for 1MDB’s power assets (when other IPPs have IRRs of at least 10 per cent, even up to 18 perc cent), the Edge business weekly estimates that 1MDB should have only paid RM8.2bn in total instead of RM10.8bn – an overpayment of about RM2.6bn.

Now, 1MDB reportedly is speculated to be in pole position among five short-listed bidders to win the bid to build a new RM11bn 2000MW coal-fired power plant with a tariff of 25.65 sen/kWh despite a rival bid from YTL coming in lower at 25.23 sen/kWh. 1MDB needs this project so that its IRR can rise to closer to 8 per cent for a successful listing on the stock exchange, where it hopes to raise RM3.3-6.6bn.

It has also acquired a 75 per cent interest in the 1,400MW Jimah power plant for RM1.2bn from the Negeri Sembilan royal family.

But the debt pressure is somewhat eased as 1MDB has also bagged lucrative cash cows in the form of super-prime land acquired on the cheap as well as other incentives.

– 1MDB bought 70 acres of land in Jalan Tun Razak very cheaply from the government to develop the Tun Razak Exchange (TRX) in the Golden Triangle. The market value now is over RM3000psf; which means it stands to gain several billion ringgit in revaluation surpluses alone. Moreover, the government has special incentives for businesses to operate within the TRX zone (gross development value RM26bn), thus giving 1MDB a controversial edge in property development.

– 1MDB reportedly bought 495 acres of the Sungai Besi Airport land for about RM1bn, which works out to RM46psf, to be developed into Bandar Malaysia (gross development value of RM20bn). It also bought 750 acres from the Negeri Sembilan government to resite the airport, which could cost it RM2bn.

These massive property development projects could affect the rest of the property sector in the Klang Valley.

To summarise 1MDB’s accounts from The Edge report:

Financial years 2016-2018

1MDB has to repay RM0.7bn in loans used to finance the Genting Sanyen deal.

Financial year ended 31 March 2015:

1MDB has a bridging loan (used to finance acquisition of Tanjung Energy) of RM6.2bn maturing in May 2014. It may have to issue new bonds to repay the banks.

Financial year ended 31 March 2013:
– Incredibly, the accounts have not yet been finalised. (Now, leading international audit firm KPMG has been replaced by Deloitte. No reason given!)
– Additional liabilities of RM15.8bn incurred in debt offerings underwritten by Goldman Sachs.
– Questions remain over RM7.1bn funds parked in Cayman Island from the PetroSaudi investment. Why Cayman Islands?

Financial year ended 31 March 2012:
– Liabilities: RM8.4bn

Financial year ended 31 March 2011:
– Income RM938m (including RM826m revaluation surplus of TRX land and profit of RM332m from the loan to PetroSaudi)
– Net profit RM544m

Financial year ended 31 March 2010:
– Income RM720m (including RM651m from disposal of stake in 1MDB PetroSaudi etc.)
– Net profit RM425m

Data extracted from ‘The 1MDB story’ by Ho Kay Tat and Afiq Isa and ‘TRX a boon for 1MDB but a bane for property owners’ by Charles Yong, The Edge weekly, 17 February 2014.

Homework: To find out what exactly PetroSaudi is.

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kleesant

We, and everyone else, are building ever larger electricity plants using the worst fossil fuel. As coal is being depleted, the latest tech is to combust low-grade deposits in the ground to extract methane. For that, it is cheaper to use low temperatures, resulting in more coal being wasted as CO2. It looks as if the planet is led by zombies walking into the apocalypse of climate change. In Selangor, the new scheme just announced to bring water from Pahang may also be little more than money-making. Most of the Selangor reservoirs are at or above 90%. Yet the water… Read more »

Don Anamalai

DAP Publicity Chief Tony Pua demanded the 1Malaysia Development Berhad (1MDB) to answer questions over the purchase of 310 acres of land in Pulau Indah for RM317 million.

He wants to know if the purchase was an effort to bailout the company that owned the land.

Julian

Sounds like 1MDB is (allegedly) a means to repatriate ill gotten money to foreign accounts of the cronies?

Don Anamalai

This is what I have en told: 1MDB directors are contravening the Companies Act 1965 over the filing of audited accounts. Clause 171(1) of the Act states that willfully failing to comply could be punished with up to five years or RM30,000. The ‘investment’ in Cayman Islands raises highly suspicious questions as 1MDB is desperately trying to raise funds through new bond issuance in Malaysia to funds its aggressive acquisitions of independent power producers as well as its mega-projects in Bandar Malaysia and Tun Razak Exchange. Such investments is a luxury that 1MDB does not have as 1MDB is already… Read more »

Azli

NST never report this way.
Good job Don!

Wee Chin

In the looming bankruptcy of Malaysia’s airline MAS (lost RM1.17 billion in FY13!), what is actually happening, that the public need to know? What kind of bailout is yet to happen again, and how will private companies prey upon dying government-linked businesses and ultimately how will the rakyat suffer in the scheme of things entire?

http://hornbillunleashed.wordpress.com/2014/02/24/57373/

Azli

Anil

Can you tell us why MAS is losing money and cut back many routes?
It is good to know why it failed big time.

abb

why are the critics of lim guan eng so quiet?
anil,

1MDB was set-up with a purpose which is to bring strategic developments. surely, putting money in cayman island doesnt fit the purpose.
is the money still there? or it has gone to pay for … partying expenses and other activities?

bigjoe

The issued statement is even more worrying.”Energy assets will fuel potential growh”, “Or else bankers wouldn’t provide project financing”. Utility assets are supposed to be safe investments and not “fuel potential growth” – clearly overpaying. 1MDB gets implicit Malaysia govt guarantee – even PKFZ managed to get ridiculous financing the stole billions from when its was financially not viable initially. Their statements are very insincere – all the signs of someone in trouble. If they don’t get the 2,000MW project which TNB (allegedly) is being arm-twisted to make it happen, their finances would unravel. They can only sell their property… Read more »

Penangkia

Gov is squeezing and killing all the family run kedai runcits, private clnics and now property developers by setting up kedai 1M, klinik 1M and buying up public listed property developers. Kill off the tax payers at the same time increase gov subsidy. It is not a very wise financial move, isn’t it?