Malaysia's debt-ridden 1MDB to scale down by early next year: Sources

PETALING JAYA (THE STAR/ASIA NEWS NETWORK) - 1Malaysia Development Bhd (1MDB) that has come under relentless attack for its financial transactions will be wound down by early next year.

According to sources, a programme is being crafted whereby Abu Dhabi will inject sovereign funds of up to US$4.5 billion (S$6.06 billion) into 1MDB - money that would be used to reduce its debts of RM42 billion (S$15.4 billion).

"The first tranche of the money will come in next week. The announcement is already out. The remaining amounts will come in batches and by early next year 1MDB will be wound down," said a source.

The reduction of its debts will allow 1MDB to "downsize" its operations significantly and transfer the remaining liabilities to its three subsidiary companies, which are into property development and generation of electricity.

"The subsidiaries have assets and can hold some amount of debt. The holding company does not have adequate assets and that is why it faces cash-flow problems to service its debt obligations," said sources.

The power generation company, which is Edra Global Energy, has three major power plants worth some RM13 billion.

The property subsidiaries are broken into two - one holding the Tun Razak Exchange (TRX) Development and the other the 200.3ha Sungai Besi airport land that is to be developed into Bandar Malaysia.

"The value of the land in TRX and Bandar Malaysia is estimated to be RM4.3 billion," said a source.

On Friday, 1MDB announced that it had entered into an agreement with International Petroleum Investment Company (IPIC) and Aabar Investments whereby the Abu Dhabi companies would inject US$1 billion into the Malaysian fund.

By early next year, it is estimated that an additional sum of US$3.5 billion would be pumped in as part of the agreement.

In return, the Abu Dhabi companies would take over some of the assets held by 1MDB, including the "units" held in Singapore's BSI Bank.

1MDB, established in 2009, is the brainchild of Prime Minister Datuk Seri Najib Razak. It was supposed to spearhead Malaysia into projects that bring high impact to the economy.

However, it has come under scrutiny for its opaque financial transactions with companies based in the Middle East.

Among them is Petro Saudi International (PSI), which was the first joint venture partner that 1MDB locked up with in 2009.

The joint venture with PSI started with an initial sum of US$1 billion. But the investment later ballooned to US$2.32 billion that was parked with funds based in the Cayman Islands.

A portion of the funds came back last year, according to 1MDB. But an amount of US$1.1 billion that was supposed to find its way back to help 1MDB redeem its debts was placed with BSI Bank in Singapore. The Finance Ministry has said the sum was in the form of "units".

Apart from the investment with PSI, the fund has also come under fire for the high cost incurred in raising US dollar debt papers.

It raised US$3.5 billion in 2012 and another US$3 billion on March 19, 2013 - just a few weeks before the general election.

The funds were raised with a high degree of collateral and cost, something that is not usual for an entity such as 1MDB that is fully backed by the Government.

According to sources, the Cabinet was briefed that 1MDB has become a political hot potato to the extent that it is hurting Umno party.

"The party comes above everything else for Najib. That is why he is deciding to wind down 1MDB," said the source.

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