PETALING JAYA: More than two-thirds of 1Malaysia Development Bhd’s (1MDB) total borrowings of RM36.25bil are supported by guarantees either from the Government, the company itself, which is entirely owned by the Minister of Finance Inc (MoF Inc), or backed by its partners from Abu Dhabi.
The fund’s latest financial accounts ending March 31, 2013 viewed by StarBiz showed that of the total borrowings, a total of RM28.22bil of its loans and bonds were secured.
Interestingly, 1MDB’s only unsecured loan of US$3bil (RM9.9bil) came with a “letter of comfort” from its shareholder - MoF Inc.
This amount was raised by its subsidiary, 1MDB Global Investments Ltd, and the proceeds are to be used as seed capital for the development of the Tun Razak Exchange project along Jalan Tun Razak in Kuala Lumpur.
The interest on the unsecured private debt securities of US$3bil is at 4.4% per annum, which surprisingly is lower than the rates charged on some of the loans that were guaranteed by the Government.
Generally, the interest rates on the loans backed by guarantees were between 4.04% and about 6%. For papers that are backed by assets of 1MDB such as its land, the interest rates that the market charges the fund is higher at between 7% and 8%.
For instance, a RM330mil redeemable bond that had been issued with maturity periods between 6.5 and 13 years and secured against the assets and properties of 1MDB carried the highest cost of funds, ranging between 7.1% and 8.35%.
The biggest loan that is guaranteed by the federal government is the maiden RM5bil Islamic medium-term notes that were raised when the fund started in 2009. The 30-year bond issue was priced at an annual rate of 5.75%, a level considered high for a Government-guaranteed bond.
The only other secured loan that is fully guaranteed by the Government is an RM800mil term loan with a tenure of 10 years maturing in 2022.
Repayment of the principal is over 14 instalments beginning April 2016 with interest charged on a half-yearly basis at 4.04% per year.
As to the corporate guarantee issued by companies from Abu Dhabi, it is mainly for the US-dollar debt papers that 1MDB had taken to purchase power plants from the Tanjong and Genting groups.
International Petroleum Investment Co PJSC (IPIC), which is an investment company of the Abu Dhabi Government, had guaranteed US-dollar debt papers to the tune of US$3.5bil to help 1MDB fund the purchase of the power plants.
In return for this corporate guarantee from IPIC, 1MDB has given a 10-year option to Aabar Investment PJS to acquire up to a 49% equity interest in both the power plants.
There is a refundable deposit held aside as collateral for the guarantee by IPIC and part of 1MDB’s strategy to list its energy assets, which is targeted within the next one year.
The term loans taken by 1MDB to purchase the power plants are expensive, as they are charged at the cost of funds plus a margin of 2% per year that is payable at intervals of three months.
To buy the Tanjong group’s power plant, 1MDB had taken up a term loan of RM6.17bil, while the syndicated bridging loan to part-finance the Genting group’s power-generation unit was RM607.52mil.
This is also guaranteed by the company with interest payable on a quarterly basis at the cost of funds plus a margin of 2% per year.