1MDB has erased a third of its debts, says minister

Men walking past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur in this March 1, 2015 file photo. PHOTO: REUTERS
Men walking past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur in this March 1, 2015 file photo. PHOTO: REUTERS

Abu Dhabi firm paid $1.35b, took over bonds and interest due, he says

TROUBLED state investor 1Malaysia Development Berhad (1MDB) has erased over a third of its debts, and would be able to pay up all its loans by the beginning of next year, Second Finance Minister Ahmad Husni Hanadzlah said yesterday.

Datuk Seri Husni told The Straits Times that Abu Dhabi's International Petroleum Investment Company (IPIC) had paid US$1 billion (S$1.35 billion) - which 1MDB used to clear debt. IPIC also took over another US$3.5 billion of 1MDB-issued bonds that it had guaranteed in 2012. Additionally, IPIC took on RM600 million (S$215 million) in interest payments due from these notes.

These were all done in exchange for 1MDB's assets, he said, But he declined to name the assets that would be handed to IPIC.

"The assets were already with (IPIC subsidiary) Aabar when the agreement was signed so about RM16 billion of debt has already been cleared," he said.

The state fund in its statement for the year ending March 31, 2014 had debts totalling some RM42 billion, mainly due to the purchase of 15 power plants and one desalination plant in six countries, raising a warning of a possible downgrade by Fitch rating company.

The ringgit has also been mauled this year as investors worry about the impact of the huge loans taken out by 1MDB, a fully- owned unit of Malaysia's Finance Ministry. So the clearing of the fund's debt could conversely ease worries that have weighed down the country's credit outlook and the ringgit.

Mr Husni told reporters yesterday that 1MDB is expected to eliminate all its debts by the beginning of next year after a rationalisation plan. At the end of the exercise, it will still be able to maintain up to RM10 billion of holdings in energy and real estate businesses, he said.

Seventy per cent of the fund's energy subsidiary called Edra Energy will be sold by the end of the year via open tender, Mr Husni said. He told The Straits Times there were several interested parties but declined to name them.

Media speculation has centred on national power company Tenaga Nasional taking over these plants at between RM14 billion and RM18 billion. The market has valued these assets at around RM12 billion.

Attacks on 1MDB have not abated.

Opposition MP Tony Pua, a prominent critic of 1MDB, yesterday accused the government of implicitly guaranteeing the US$4.5 billion deal with IPIC on behalf of 1MDB.

Referring to a disclosure made by IPIC to the London Stock Exchange, he said 1MDB and the Finance Ministry have agreed to indemnify IPIC and another Middle Eastern partner for any non-performance, "and vice versa".

1MDB denied any guarantee was offered by the government on the agreement, saying the indemnity clause is commonly used legal terminology in commercial transactions.

However, Mr Husni would not clarify if there was indeed a government guarantee, saying "it's a non-issue".

Former prime minister Mahathir Mohamad, a fierce critic of 1MDB, said yesterday that the arrest of Swiss national Xavier Andre Justo for alleged blackmail in Thailand last week does not change the fact the fund entered into lopsided deals and overpaid for its energy assets.

shannont@sph.com.sg

A version of this article appeared in the print edition of The Straits Times on June 30, 2015, with the headline '1MDB has erased a third of its debts, says minister'. Print Edition | Subscribe