Fixing the Finances of Malaysia’s State Fund: The Process So Far


Shamim Adam
Bloomberg
April 13, 2016

It’s been more than a year since state investment fund 1Malaysia Development Bhd., at the center of multiple probes into its finances, announced plans to sell assets and pare debt. Its borrowings then ballooned to over 50 billion ringgit ($12.9 billion) as of January.

1MDB has said it won’t make new investments or undertake projects once it clears some existing deals. Set up by the government in 2009 to build infrastructure with borrowed money, it has drawn political criticism and almost failed to repay loans.

Global investigators are looking into possible money laundering and embezzlement at the company, whose advisory board is chaired by Prime Minister Najib Razak. Here’s a snapshot of where 1MDB is at in getting its finances in order:

Power Projects

1MDB faced cash flow problems in 2014 after a planned initial public offering of energy unit Edra Global Energy was delayed amid unfavorable market conditions. The plan was later canceled and the fund completed the sale of Edra to China General Nuclear Power Corp. for 9.83 billion ringgit in March.
In 2014, 1MDB won a bid with Japan’s Mitsui & Co. to build an 11 billion ringgit coal-fired power plant in Malaysia, known as Project 3B. It transferred the project to state producer Tenaga Nasional Bhd. in June as it lacked the capacity to take on a further 8 billion ringgit of debt.

Land Deal

The Tun Razak Exchange financial district, or TRX, is being built on 70 acres of land near the Petronas Twin Towers in downtown Kuala Lumpur. Named after Najib’s father, who was the country’s second prime minister, the development has a projected sales value of 40 billion ringgit.
So far, about 1 billion ringgit of land has been offloaded, including a controversial sale to Lembaga Tabung Haji, the national Hajj pilgrims fund. Najib ordered Tabung Haji to sell the plot just days after the purchase was disclosed, following protests and a public outcry on social media.

Bandar Malaysia

Bandar Malaysia is a 486-acre mixed-use project that will include a terminal for the proposed high-speed train to Singapore. It has a projected sales value of 150 billion ringgit.

1MDB has sold off 60 percent of the township to a consortium of China Railway Engineering Corp. and developer Iskandar Waterfront Holdings for 7.41 billion ringgit. China Railway in March announced a further $2 billion investment in Bandar Malaysia.

Debt, Accounts

In May 2015, Abu Dhabi’s International Petroleum Investment Co. entered an agreement to provide 1MDB with $1 billion to settle some of its liabilities in exchange for a transfer of assets. IPIC said this week it isn’t linked to a company that received $3.5 billion of 1MDB funds, and it’s unclear if that development will affect the pact.

1MDB has been allowed to extend the submission of its audited accounts for the year ended March 2015 — due at the end of September last year — by 12 months.
The fund said in a statement Tuesday it had repaid all short-term debt and bank debt, leaving it with 2.3 billion ringgit in the bank. 1MDB will be a holding company with no operations once the rationalization process is over, President Arul Kanda said in an interview last month.

Financial Markets

Foreign investors pulled 30.6 billion ringgit from stocks and bonds in 2015 as the currency fell to a 17-year low, in part amid concerns about political risk related to Najib and 1MDB. This year, helped by a recovery in oil prices, the ringgit is Asia’s second-best performer with a 10.6 percent gain against the U.S. dollar. The currency last month appreciated beyond 4 a dollar for the first time since August and the cost to insure the nation’s debt has fallen from January, the peak for the year so far.

Investigations

Even as it winds down some operations, 1MDB’s legal troubles may not be over. There are probes reported in at least ten countries related to 1MDB, or on companies and individuals linked to it.

A bipartisan Malaysian parliamentary committee this month identified at least $4.2 billion of unauthorized or unverified transactions and recommended former chief executive officer Shahrol Halmi and other managers be investigated.

In January the Swiss Attorney General’s office said a probe of 1MDB revealed “serious indications” that about $4 billion may have been misappropriated from Malaysian state companies. Singapore authorities said they had seized a “large number” of bank accounts in connection with 1MDB and possible money-laundering carried out in the island nation.

The U.S. Justice Department is investigating if funds were embezzled from 1MDB, according to people familiar with the matter. 1MDB has consistently denied wrongdoing.

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