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.