The myth of Syed Mokhtar’s RM25 billion debt

Receiving Tokoh Maal Hijrah award for his philantrophy work

Utusan Malaysia wrote two articles on MMC Corporation on January 6th 2010 here and January 8th 2010 here.

It was meant to dispel allegations made by Straits Times Singapore that Tan Sri Syed Mokhtar is facing with a debt problem of RM25 billion, in which RM21 billion of borrowing is by MMC.

Having been in the corporate world before, negative news or rumours usually emanate from Singapore, especially those to ridicule Bumiputera corporate businessmen.

It is like a coordinated effort within and without the country to stem any gains in Bumiputera economic empowerment.

In our recent posting here and here, we have partly question the accepted myth of Tan Sri Tajuddin Ramli losing RM8 billion at Malaysian Airlines System Berhad (MAS). Along the way, we learnt the need to stem rumours before it is assumed as undisputable truth.

This blog pursue to investigate the Malaysia Today's MAS story and found many untrue claims and dark sides of this concerted effort to ridicule the ACA, MACC, Attorney General and former Inspector General of Police.

The conspiracy involving Raja Petra Kamaruddin, Din Merican, Rosli Dahlan, Dato Ramli Yusoff, Dato Mat Zain Ibrahim and so-called philantrophist Tan Sri Robert Phang will unfold soon.

Until such time, let us debunk this myth of Syed Mokhtar’s RM25 billion debt.

The market talk of Syed Mokhtar sitting on a mountain of debt has been making it’s round for quite a number of years. Part of the reason that Syed Mokhtar have been pursuing, taking on and taking over endless list of strategic assets.

This opens him to jealousy and negative speculations. More so that he is a Bumiputera businessman that is supposed to stereotypically fail and expected to be inferior to Chinese.

Not only he has to face up to Singapore newsmen and analysts, he has to deal with the Tingkat 4-linked Khazanah people who looks at him with much disdain. It is heard that the RM25 billion debt figure came from Khazanah people.

Their close association with Singapore is an open secret with Nor Yakcop's hand pretty much in Khazanah affair. Nor Yakcop is a long close associate of Tun Abdullah's cabal, Dato Kalimullah.

Syed Mokhtar is no close allies. The first act of Tun Abdullah when he assumed premiership was to cancel the strategic double tracking project meant to be awarded to Syed Mokhtar. There were many other project reviews, cancellations and postponements after that.

There is talk that when he submitted the proposed buyout of PLUS last year, Khazanah changed UEM's plans and decided to give it to EPF. The finality is yet in sight.

With Bumiputera like this, one do not need other races to sabotage Bumiputera businessmen.

Let’s look at MMC. Is there such size of debt?

MMC is one of Malaysia’s largest conglomerates with leading positions in transport & logistics, energy & utilities and engineering & construction. They own the Port of Tanjung Pelepas (PTP), Johor Port and Senai Airport.

MMC's engineering team built the innovative and award-winning SMART tunnel project. They are currently undertaking the renewed but more expensive RM12.5 billion electrified double tracking railway project between Ipoh and Padang Besar.

MMC was recently awarded the role of Project Delivery Partner for the development of the RM36 billion urban mass rapid transit project for Kuala Lumpur.

MMC has interests in Malakoff, Malaysia’s largest independent power producer with an effective generation capacity of 5,020MW or 23% of Peninsular Malaysia’s total installed capacity.

Through Aliran Resources, MMC is expanding abroad to the Middle East into water treatment plant Saudi Arabia, Algeria, and Jordan. If our memory has not fail us, Syed Mokhtar’s group controls Air Johor Berhad.

Earlier in October 2010, The Malaysian Insider here wrote of the billionaire's growing strategic asset is raising concerns.

Syed Mokhtar had strategic presence in basic food like rice, sugar and flour. An area the Chinese wish to strategically hold a monopoly. They claimed he was bidding for the RRI land in Sungai Buloh.

In early December 2010, his name turn up for the 32% stake in Pos Malaysia up for sale by Khazanah and it ties very well with his other logistic and supply chain businesses. Read Rocky Bru's here.

Many would have suspected and speculated that Syed Mokhtar and MMC have high gearing. Is it really so?

Since MMC is the largest of Syed Mokhtar’s vehicle, let us take a look at it.

The manner Syed Moktar structure his loans is that debt are contained at the operating subsidiary level. So does with MMC.

These subsidiaries have sufficient cashflow to comfortably cover their respective debt service requirements. Most debts have been secured on a non-recourse basis.

As of third quarter 2010, MMC has a total gross debt of RM20.4 billion on a group level. This less by RM470 million from the 2009 level. After netting cash, net debt level stands at RM15.9 billion.

The bulk of these borrowings reside in Malakoff and its ports. These borrowings are structured such that the obligations are secured.

Excluding Malakoff, MMC debt level is only RM6.7 billion.

This is not to telling to ignore Malakoff. Again, like his other operating subsidiaries, Malakoff debt is standalone tied with the energy concession.

MMC have been receiving dividends from its subsidiaries and associates. The third quarter dividend for 2009 was RM189.3 million and 2010 was RM204.25 million which increase the ability to repay its loans.

MMC has options to pare down debt at the holding company level by RM3.57 billion.

Credit Suisse analyst report dated 30 September 2010 forecast MMC’s EBITDA for 2010 of RM3.25 billion. Put that against borrowings of RM20.9 billion. Any problem now?

Finally, the interest cover and gearing ratio is at fairly comfortable level. See figure 2 below:

All Syed Moktar need to do is to explain for his other smaller corporate vehicles like Tradewind, Bernas, DRB Hicom, and etc.

Is it a debt problem or racially or politically related corporate sabotage?

If there is no such jealousy or conspiracy, this is something observers need to understand. Most analysts and business reporters suffer from looking at the obvious and visible, thus for the pessimistically inclined view.

Most businessmen have a trick at their sleeve. The real key to their success is usually hidden and not openly known.

As a hint, all that is done by Syed Mokhtar is amal jariah and national service. Some speculate it as to realise Tun Mahathir's dream.

Not many knows Syed Mokhtar's real business, thus the tendency to misread him. However, we will not say a word to respect his trade secret.