Cutting off leg to remove the pain of gout

Ludicrous isn't it, Arul?

Just weeks a go, there was a presentation and discussion by an "economic consultant" on 1MDB. He presented the list of issues on 1MDB compiled from statements of opposition leaders, reports of left leaning medias and bloggers postings.

Using the anonymous and unconfirmed material, he concluded to recommend 1MDB be liquidated. Anyone with any basics in Strategic Management or Business Policy knows that it is like cutting off one's leg just to remove the pain of a gout attack.

Today another positive effort is made on 1MDB to bring in Prokhas.  It must be consequent to Arul Kandasamy's statement on their strategic review in February.

A week earlier to the presentation one corporate personality said 1MDB can be salvaged. It means there are values to be derived from it. Only last week, Edge Financial Daily reported a former TNB CEO said his company is exploring into the IPP assets of 1MDB.

Since those attending the presentation were politically inclined and had minimal understanding in corporate matters, it was pointless to educate them on other strategic options available. They were too eager to chew the RM2-3 billion annual parking meter argument and pull off a political stunt devoid of any substance.

Prokhas

It is yet to be confirmed as true but The Star has jump the gun on the news:

Prokhas steps into 1MDB

Wednesday, 8 April 2015

PETALING JAYA: Prokhas Sdn Bhd, the in-house restructuring outfit of the Finance Ministry (MoF), has been tasked to help sister company 1Malaysia Development Bhd (1MDB) deal with cash-flow problems tied to its debt obligations.

It is learnt that Prokhas was roped in to assist 1MDB, which needs about RM5bil this year to meet its debt obligations.

“Prokhas has come into the picture, which is why CIMB Investment Bank Bhd that was appointed two weeks ago to look into the sale of 1MDB’s energy assets has been out of the job,” said a source.

The amount due this year is largely to cover the payment of a US$975mil term loan taken by 1MDB Energy Holdings Ltd that falls due on Aug 31 this year. At the current exchange rate of 3.64 to the US dollar, the maturing term loan is valued at RM3.55bil.

1MDB Energy Holdings is the energy unit of 1MDB that was supposed to list by the first quarter of this year under the new name of Edra Global Energy Bhd. But 1MDB withdrew its proposal on Feb 28 this year because it could not meet the listing requirements.

“CIMB was roped in to arrange for the sale of Edra Energy, which is about the only asset that can be sold immediately to raise funds for 1MDB to help meet its debt obligations,” said a banker.

But its mandate was terminated on April 1 – just a week after the investment bank was appointed.

The other portion of the RM5bil obligation this year comes from interest cost totalling around RM1.4bil on all other outstanding loans that 1MDB has taken over the last five years.

1MDB is RM41.9bil in debt to fund a buying binge over the past five years, as the company built up a portfolio of power and energy assets, as well as amassing prime landbanks earmarked for future development.

While the power plants acquired from Genting Bhd and Tanjong Plc are generating some cashflow for the company, it is not enough to cover its interest cost and planned development expenditure.

Last year, 1MDB had to defer a debt payment taken to finance the purchase of Tanjong’s power plants in 2012 for RM8.5bil.

An outstanding amount of RM2bil was finally settled with the assistance of billionaire T. Ananda Krishnan, who owns Tanjong, after two delays.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had, in his winding-up speech in Parliament on March 25, said that the Government had formed a special task force to look into 1MDB’s performance, as well as the debts borne by the firm.

He had earlier in March told Parliament that 1MDB’s financial position was “unsustainable” with a cashflow problem.

The Government, Husni said, had already extended RM950mil to 1MDB as a “standby credit” facility to address its short-term financial needs.

The firm generated a revenue of RM4.26bil for the year ended March 31, 2014, but reported a loss of RM665mil as finance cost ballooned to RM2.4bil.

As it is, 1MDB’s total US dollar-denominated borrowings stand at a staggering US$7.5bil, or RM27bil, at the current exchange rate.

Based on these outstanding debts, 1MDB’s interest payment cost amounts to at least RM1.2bil a year over the next seven years.

In 2022, the massive US$3bil bonds taken by 1MDB Global Investment Ltd will reach maturity.

1MDB is 100%-owned by the MoF, but unlike other Government-linked investment companies, the ministry has never had board representation in the company.

But as worries about 1MDB’s financial obligations are reaching a boiling point, the Government has taken a more active role.

Prokhas is a special project outfit under the MoF and is involved in various corporate restructuring work for the Government. The company was set up in 2005 to take over the role of Danaharta Nasional Bhd.

Danaharta had much success in restructuring Banks facing loan and debt problems in the financial crisis of 1998-2000. Their experience is most relevant for reviving 1MDB.

Strategic review

The step taken must be along the result of the strategic review done by Arul Kandasamy in late February. The Malaysian Reserve reported then:

1MDB concludes strategic review

TMR
Wednesday, February 18, 2015

“These projects are crucial to the socio-economic development of the country in general and Kuala Lumpur in particular, with TRX and Bandar Malaysia expected to generate, over time, gross development values of RM40 billion and RM150 billion respectively," said Arul. (Graphic by:Dayang Norazhar/TMR)

1Malaysia Development Bhd (1MDB) today announced the outcome of its comprehensive strategic review, which was led by president and Group Executive Director, Arul Kanda in January this year.

The conclusions of the review, which had been endorsed by the Board of Directors, are:

* 1MDB has fulfilled its objectives of acting as an enabler for new ideas and sources of growth, and serving as a catalyst for the development of assets and projects of strategic importance, that would create value for the economy;
* The company's significant achievements include: consolidating its separate energy assets under Edra Energy with a unified management team and Board; establishing the platform for developing TRX as a financial centre, which has attracted investment interest from major Malaysian and international firms; and successfully positioning the Bandar Malaysia development master-plan to include the Malaysian terminus for the High Speed Rail link to Singapore, along with two MRT lines for seamless intra-city connections;
* The company will now focus on its core businesses, and no new investments or projects will be undertaken. Furthermore, no new debt will be raised except in order to refinance existing debt / meet existing liabilities, and/or on a non-recourse, project finance basis, as needed;
* As with Edra Energy, TRX and Bandar Malaysia will be run as standalone entities, with independent governance structures, and responsibility for their own operations and finances. Both entities will continue to be ultimately owned by the Ministry of Finance, thereby ensuring that their significant future value benefits the rakyat;
* Edra Energy to focus on its core existing projects, and the company to be monetised in 2015, with a portion of the proceeds being invested in the business for future growth and remainder going towards repayment of 1MDB's short term debt;
* Air Itam and Pulau Indah land to be monetised through joint ventures or outright sale;
* Maturing debt to be met via refinancing from best available sources or repaid from sale of land development rights, raising of external equity from joint-ventures and/or outright asset sales;
* The 100% shareholder of 1MDB, the Ministry of Finance, will be involved as relevant and as required in the interests of maximising shareholder value.

Commenting on the strategic review, Arul Kanda stated:

“Following a thorough examination of the business and our operations, I am pleased to confirm that we have now completed the strategic review that was announced by the Board of Directors at the beginning of January.”

“In conducting the strategic review, we were mindful of 1MDB's vision and mission: to act as a strategic enabler for new ideas and sources of growth, and to drive sustainable economic development in Malaysia. In essence, 1MDB's purpose is to serve as a catalyst, developing assets and projects of strategic importance, with a view to creating maximum value for the economy,” Arul said in a statement today.

“Having achieved this, 1MDB will not undertake any new investments or projects, and we have developed a clear strategy for each of our existing businesses moving forward.”

“Since its inception, 1MDB has systematically built high quality businesses in the energy and real estate sectors. As has already been achieved with Edra Energy, we believe this is the right time to establish TRX and Bandar Malaysia as independently managed companies, with full autonomy and accountability for their operational and financial performance. We believe this is the best way to realise full value from these investments for all stakeholders,” he elaborated.

“Whilst options are being pursued with respect to the monetisation of Edra Energy, ownership of 1MDB’s real estate assets must ultimately remain with its 100% shareholder, the Ministry of Finance.”

“These projects are crucial to the socio-economic development of the country in general and Kuala Lumpur in particular, with TRX and Bandar Malaysia expected to generate, over time, gross development values of RM40 billion and RM150 billion respectively. The government's continued ownership will ensure that such value ultimately benefits the rakyat,” he said.

According to Arul, it is recognised that 1MDB’s debt financed capital structure is no longer appropriate for the company, and measures are intended to be taken to ensure that 1MDB and the standalone entities are well positioned to service debt and infrastructure obligations.

“Additionally, there is a need for more direct matching of assets and cash-flows. TRX and Bandar Malaysia will sell land development rights and/or enter into profit-sharing joint ventures, for example, with government linked investment companies as well as with Malaysian and international private sector companies, who can contribute not only development expertise but also equity and debt to finance specific projects,” he explained in the statement.

“We expect to implement these plans over the next 12 months, and will provide periodic updates on our progress," said Arul.

The entry of Prokhas could be a follow up to statement by Datok Husni Hanazlah that 1MDB's existing structure is not financially sustainable.

Failed listing

1MDB is believed to be in the current state due to failure to list Edra Energy according to the planned listing last year.

That would have enabled them to retire some of the debt and strengthen the asset value which would propel them in a stronger financial position to move on further with their planned development.

Unfortunately, problem arise at the parent company level due to debt commitment with Ananda. It was rumoured that Ananda sabotage the deal but such accusation does not jive with the words that he had via his company lend 1MDB the money.

This blog had wrote before that sources within 1MDB claimed the listing is on track and will be completed by March or April.

Undoubtedly the RM51 billion asset versus RM42 billion liability is comforting and opens the company to many strategic option other than liquidition.


However, the fundamental question that pervade us was as to why the need to undertake such a risky highly leveraged financial structure. Contrary to Dato Ahmad Maslan's claim of government made no guarantee, there is the cross default term in the loan agreements.

Denials and statements have been made but this blog still remained suspicious of Taek Jho Loh and Petrosaudi. This should throw any perception that this blog is a paid dog to defend 1MDB at all cost.

1MDB had been in our radar since 2009 and there are many more relevant issues pertaining to 1MDB that had not been explored. In fact, the critics on 1MDB may have been diverted the wrong way.

Nevertheless, to make unsubstantiated allegations on 1MDB is irresponsible politics. This blog had highlighted before that the publicly available information on the allegations on 1MDB are based on unconfirmed and anonymous sources.

All the vocal personalities questioning 1MDB has yet to reveal any documents or proofs to confirm their allegations.

Thus heard by words of mouth is that Tun Mahathir and Tun Daim have done all the research and documents prepared by various investigation and intelligence agencies. Unfortunately one agency was heard to only begin investigating last month!

Tun Mahathir is only asking that rumours spreading around on 1MDB be addressed. A surat layang on 1MDB is said to have been circulating and had reached UMNO grassroot.

Allegedly Tengku Razaleigh acknowledged the Tum Mahathir and Tun Daim's claim and had received explanation from Ananda Krishnan.

With 1MDB not uttering any concise explanation, merely denials refuting allegations and unaccessible for media to enquire, Goebbel's words become true. A lie (if it is a lie) repeated many times will be accepted as truth.

In the land of the deaf and dumb, those who speak will be leader.