IMDB unveils changes to structure, seeks to improve cashflow

  • Business
  • Thursday, 19 Feb 2015

PETALING JAYA: 1Malaysia Development Bhd (1MDB), which has drawn attention for its debts and yet-to-be-listed energy division, will not undertake any new investments or projects and raise new borrowings.

In an announcement after a strategic review of its business, the government-owned strategic fund with total liabilities of RM49bil as of March 31, 2014 said that it might sell assets including its land in Air Itam, Penang, and Pulau Indah, Selangor, and look at options on monetising the Edra Energy, which is its power generation division.

As for its real estate projects in Tun Razak Exchange (TRX) and Bandar Malaysia, the federal government-owned fund will sell land development rights or enter into profit-sharing joint ventures.

It said that similar to Edra Energy, the subsidiaries developing the TRX and Bandar Malaysia would be run as standalone entities with independent governance structures and responsibility for their own operations and finances.

As for the listing of its power assets that was earlier scheduled to be in the first quarter of this year, 1MDB gave no indication if the plans for a public offer of Edra Energy shares was still on track. It only stated that the plans to monetise the power genration division in 2015 was still on.

“Edra Energy will be monetised in 2015, with a portion of the proceeds being invested in the business for future growth and the remainder going towards repayment of 1MDB’s short-term debt,” it said in a statement.

On its debt, for which the fund has come under criticism from various quarters for the high fees incurred in raising new money, 1MDB said that it would only embark on financing non-recourse project financing.

“The company will now focus on its core businesses. 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,” 1MDB stated.

“Maturing debt is 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,” it added.

President and group executive director Arul Kanda Kandasamy (pic), in commenting on the strategic review, admitted that the fund’s debt-financed capital structure was no longer appropriate for the company.

“We recognise that our debt-financed capital structure is no longer appropriate for the company, and intend to take measures to ensure that 1MDB and the standalone entities are well positioned to service debt and infrastructure obligations ... there is a need for more direct matching of assets and cashflows,” he said in a statement.

He said TRX and Bandar Malaysia would 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 that could contribute not only development expertise but also equity and debt to finance specific projects.

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

Arul took over the helm of 1MDB on Jan 5 and initiated a strategic review of its businesses. 1MDB has come under scrutiny because of its RM49bil in liabilities as of March 2014 of which RM42bil are long-term debts as it took up large borrowings to built up a portfolio of power plants. To match the liabilities, it had assets of RM51.4bil.

But a substantial portion of its assets was in the form of valuable land that were re-valued several times. Hence the only source of substantial cashflow was from its power assets that were acquired at a premium.

To underline its cashflow situation, last week it settled a RM2bil debt tied to its acquisition of the power assets from Powertek in 2012 due to several local banks after several extensions.

1MDB has also come under flak for its acquisition of some 1,000 acres in Air Itam, Penang, and 310 acres in Pulau Indah, Klang. Both acquisitions came up to about RM1.3bil.

1MDB said that both the Air Itam and Pulau Indah land would be monetised through joint ventures or outright sale.

“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,” Arul said.

He added that while options are being pursued with respect to the monetisation of Edra Energy, ownership of its real estate assets must ultimately remain with the Finance Ministry, 1MDB’s shareholder.

“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 RM40bil and RM150bil respectively,” Arul added.

Arul came on board 1MDB when the fund’s listing of its energy division was uncertain, it had huge amounts of money parked outside the country with little-known asset management companies and under intense pressure from politicians seeking a higher degree of transparency.

Arul gave a series of interviews promising better disclosure and the statement yesterday was the first major announcement on its future direction.

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Business , 1MDN , Arul Kanda


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