It's a start for 1MDB's new "Mamak" CEO

If Deputy Finance Minister, Dato Ahmad Maslan not say that the new CEO for 1MDB, Arul Kanda s/o Kandasamy converted to Islam, no one would have known.

Not that it matters, but such a name would not have hinted that he is an Indian Muslim. Does he fulfill the definition of a Mamak?

Anyway, his religion is hardly the issue. Despite Malaysiakini criticism of Ahmad [read here], give him a break. Arul's impressive resume in Islamic banking would have attracted such enquiry [see here in The Star].

On his second day in office, Arul had given The Star an interview. Considering how secretive 1MDB  management had been and their reluctance to engage media, alternative and mainstream, that is a start.

A nemesis of 1MDB, who happen to be acquintance of Arul in his days debating for RMC, Rafizi Ramli took notice and speculated Arul is taken in for his communication skill. [read MI here].

How perasan could Rafizi be?

Rafizi can be so full of himself. Thus far, 90% of his allegations can be dubunked or easily refuted or made up out of pure slander and lies.

He can also make a fool of himself by calling for lower fuel prices but when it is lowered, he argued it would bankrupt pump stations thus giving the impression he is seeking for higher fuel prices.

He is facing a legal action by former NFCorp CEO, which does nt likely to win. In Nurul Izzah's day in court, she effectively admited to slandering NFCorp and tried to seek timeout by requesting  court to wait for judgement on Rafizi's first.

Nevertheless, it is hope that, unlike the earlier Hezam, Arul would give time to the media and bloggers covering corporate and economic issues.

A start

The Star interview:

It’s business as usual at 1MDB, new chief assures staff there is no immediate change

Thursday, 8 January 2015

AT the start of the interview in 1Malaysia Development Bhd’s (1MDB) office in Kuala Lumpur, the newly minted man at the helm of the government-owned investment fund, Arul Kanda Kandasamy, pointed out that they want to be as transparent as possible on their workings.

However, the London-trained lawyer-turned-investment banker confessed that he had yet to look at the “tonnes of documents” sitting on his table to reply to all the questions thrown at him.

Nevertheless, he has promised to provide updates and progress periodically as and when there are major developments. Below are excerpts from the interview:

What is the mandate that you have been tasked with at 1MDB?

My first priority is to ensure that my coming in does not impact the running of the business at 1MDB. It is business as usual. We need to get our people reassured that there is no immediate change to their roles and functions.

The second part of my mandate is to undertake a strategic review of 1MDB, and this is essentially an A-to-Z review of the company, its activities and strategies.

Why is there a need for a strategic review, given that 1MDB is a fairly new company?

We have 15 power plants in multiple countries and the scale of Bandar Malaysia and the Tun Razak Exchange (TRX) are complex projects. Companies undertake periodic checks of themselves. The age of the company is not so much an issue, considering that the world now moves at light speed.

Why are you taking on this position?

There are a few reasons. One is personal. I am Malaysian and have family and friends here. Having been offered a role to come back to Malaysia was very attractive.

From a professional perspective, a lot of what I have been doing in my career is structured finance and I also have a legal background and have been managing a diverse portfolio of assets. The mandate fits my professional background. It is something I know I can do and am willing to give it a shot.

Thirdly, there is a strong management team at the energy and real estate divisions of 1MDB. Also, the board is fully behind the company and the shareholder, fully supportive.

Of course, there are challenges, and I am fully aware of these challenges.

How do you handle views that you are here to take care of the interests of the investments by Abu Dhabi?

I am a professional and have always been a professional. I am not aligned to any party. I am here not for any other purpose apart from the mandate from the 1MDB board, which is to act in the best interest of our shareholder. There was a process and I was interviewed by the board. Ashvin J. Valiram, who is a board member of 1MDB, had approached me for the role.

Is the listing of the energy arm on target for the first quarter?

Unfortunately, there is not much I can say, as the initial public offering (IPO) is subject to the Securities Commission’s (SC) guidelines.

Has the draft prospectus been lodged with the SC?

We are unable to confirm or deny, as we have to abide by the SC’s guidelines.

Can you comment on the RM2bil loan that is outstanding to banks like Malayan Banking Bhd and RHB?

The loans facility in question is a private facility between us and the lenders/banks. And there are confidentiality clauses. The accounts tell us what the facility is and the interest rates, but apart from that, because it is not a public instrument like bonds, we are bound by confidentiality.

In 1MDB’s latest annual report, it was stated that the remaining US$1.23bil (RM4.3bil) parked in the fund in Cayman Islands would be redeemed by Nov 30, 2014. Can you elaborate on this?

A portion of this has already come back and the remainder of the funds has already or is in the process of coming back. It’s my second day in office and there are tonnes of documents on my table, and unfortunately, my chief financial officer is not here. Otherwise, we could confirm that very quickly for you.

But the important point is that our company’s chairman (Tan Sri Lodin Wok Kamaruddin) had said recently that the money would come back, and it will.

There was another amount of US$1.58bil or RM3bil that was raised, which was earmarked for TRX via a joint venture with Aabar Investments PJSC, that has been placed with an overseas fund manager. Will that money be brought back?

At the moment, we have no plans to do so. The management of those funds, as stated in the company’s accounts, is with an independent fund manager. We have various obligations that we need to manage in terms of the use of funds.

What’s important to highlight as a company is that we need to optimise our use of cash and we need to prioritise the payments and obligations that we have.

Bear in mind that there are three parts to the company – energy, Bandar Malaysia and TRX. We have operational costs and debts that we need to manage and service.

At any point in time, we have cash inflows and outflows and assets and liabilities that we need to manage and we try to optimise the use of this from a timing perspective to ensure we generate maximum value for the shareholders. In that sense, we are no different from any business.

The decision of what funds we use and when has to take into account these specific circumstances.

With the declining ringgit, what would be the impact on 1MDB, given that most of its projects are in ringgit and located in Malaysia?

Companies have a mix of funding sources. Like in any company looking at its funding requirements, it would be able to tap a variety of debt markets. At any given point in time, there would be some debt markets that are more attractive from a tenure perspective, a size or a pricing perspective.

And it was determined at that time by the management and the board that that was the optimal instrument to be issued for the company, given the company’s requirement.

Has the Aabar option tied to the purchase of the power plants been extinguished?

The option, which is the right to receive shares during the IPO, has been extinguished. To extinguish the option completely, there is a payment that is required. That payment has been made, but is subject to a formula with adjustments upward or downward, depending on the value of the proposed IPO.

What about the options granted to Tanjong plc?

Those options are still there.

— By Risen Jayaseelan and Gurmeet Kaur

Explanation, not denial

He still has tons of issues to explain to a public that has grown to suspect 1MDB as a bogus operation to siphon money.

They say Arul came in because IPP listing failed. RM2 billion loan had defaulted. Operating losses. Kickback from high fee to Goldman Sachs. Cayman Island account. PM's wife did et cetera, et cetera, et cetera.

Some of the issues are merely manipulation, some are presumptions, and some came from messengers with credibility issue or personal vengance.

In the case of Dato Khairuddin who made a police report, it was exposed yesterday that his home was force sold by an auctioneer. Political observers will presume he was getting even with Dato Najib for not helping him.

Nevertheless, there are fair concern. For instance, changing auditors and CEO in midstream towards a major corporate exercise (in 1MDB case is the IPP arm listing) gives bad vibes of any company to the market.

1MDB's answers of nahi nahi nahi sound like a broken old Hindustan vinyl record. They only deny but are not explaining. They are talking but the answers given are not convincing the right group of people.

It is perplexing that the communication strategy of 1MDB is handled by an external party not conversant on corporate finance and the information was channeled through Malay political media, MSM and alternative, instead of the business media and reaching to the banking and investment community.

1MDB is not a "plain vanilla" deal, thus simplifying for the political crowd was a bad move. What do they know about IPP valuation methods or structured deals or "Islamic" accounting standards?

Basically, 1MDB should open up some of their cards to within trusted circle. Obviously the trusted circle is not any newspaper reporter. Only then could they help communicate positively for 1MDB.

Opening the card at one go or banking on a successful listing with the hope to shame critics in the manner the Scorpene scandal was debunked will not work this time. Pro-opposition media could ignore the answer and crowd the airspace (or perhaps the cyberspace) with other news or controversies. 

Of importance, there must be explanation on how 1MDB raise their fund because the public was given the impression that this government fund is operating like a highly leveraged hedge fund. The intention to "nationalise" IPP can be appreciated but the mystery of the high price purchases from Genting Sanyen, YTL, Malakoff etc must be answered.

If the IPP and TRX projects are profitably so lucrative and the intention is to share with the public via institutional investors, it is worth the support.

It looks impressive of 1MDB to be able to accumulate an asset worth RM51 billion from a start-up fund of RM100 million. More impressive when considering that 1MDB was the transformation of TIA which had a chequered start due to involvement of a Sultan sibling.

It is almost like making money out of nothing. If it is structured to match against the RM41 billion liability, it should be safe and profitable. It is unthinkable for 1MDB to assume an open and unmatched ALM position for asset and liability sizes of RM51 billion and RM41 billion, respectively.  

1MDB still has a long way to go and need the support of bankers, stockbrokers, institutional investors, and public, locally and internationally. They cannot allow mysteries surrounding Jho Loh, their Middle East partners and Petrosaudi to continue on the loose. No professionals in the oil and gas industry checked thus far have heard such a company called Petrosaudi.

Having worked in the Middle East, hopefully Arul could explain.