MoF will not take over 1MDB debts, says Johari

Second Finance Minister Datuk Seri Johari Abdul Ghani: "The debts that would remain on the balance sheet of 1MDB are the RM5bil sukuk, the US$3bil bond and the two tranches of US$1.75bil bonds."

KUALA LUMPUR: The debts of 1Malaysia Development Bhd (1MDB) will not be taken over by the Ministry of Finance Inc. (MoF Inc), says Second Finance Minister Datuk Seri Johari Abdul Ghani.

In a statement issued on Thursday, he said the debts that would remain on the balance sheet of 1MDB are the RM5bil sukuk, the US$3bil bond and the two tranches of US$1.75bil bonds.

“These 1MDB debts will be serviced from matching cashflows, as described in the PAC (Public Accounts Committee) Report. Whilst MOF Inc. will not be taking over these 1MDB debts, the substance of the letter of support and guarantee from the government, remains intact, as described in the PAC Report,” he said.

The RM5bil Islamic debt issue was the first tranche of bonds issued by 1MDB in 2009. 

Subsequently when it acquired the power plants from the Tanjong Group Plc and Genting Group in 2012, it issued two tranches of US dollar denominated papers fo USD1.75bil each.

In March 2013, 1MDB issued a USD3bil debt paper in relation to finance the infrastructure in the Bandar Taun Razak project.

Johari said DAP's Tony Pua, who is a member of the PAC, is also well versed in the facts concerning the 1MDB.

“Thus, it is disappointing to note that he has chosen to misrepresent the facts and has accused me of lying, in his desperate attempts to mislead the rakyat,” he said in reply to a statement from Pua on the matter.

Johari also stated the Bandar Malaysia Sdn Bhd (BMSB) and TRX City Sdn Bhd (TRXC) project company operating debt -- which are part of the assets and liabilities of the company – will be serviced from the project cash-flows.

He said the Tun Razak Exchange and Bandar Malaysia lands were originally owned directly by the government.

Based on the PAC Report, the government decided to sell the pieces of land in 2010 and 2013 respectively, to 1MDB, a holding company 100% owned by MOF Inc.

1MDB in turn owned the lands via its 100% equity shareholding in two subsidiaries – TRXC and BMSB.

“It is clear that from the above transactions, the government ownership of the lands shifted from direct to indirect ownership, via MOF Inc ultimate ownership of 1MDB and its subsidiary companies,” Johari said.

He added although the Bandar Malaysia land was sold at a nominal sum to BMSB, it had to construct/upgrade six bases for the RMAF and two bases for the Polis diRaja Malaysia (Royal Malaysian Police) for a total development cost of RM 2.7bil, of which 1MDB had to contribute RM1.6bil.

Although the TRX land was sold at a nominal sum to TRXC, the latter also had to build infrastructure not only in TRX but also in the surrounding areas, including a vehicular tunnel under Jalan Tun Razak, for a total of about RM3bil.
“TRXC and BMSB undertook debts of RM800mil and RM2.4bil respectively, to undertake the construction of infrastructure and the six air force / two police bases referred to above.

He explained these debts were always attached to the said land when these these companies raised their financing and thus form part of the security for the said debts. Hence, it is an operating debt of these companies.

Johari said the the value of the TRX and Bandar Malaysia lands have increased in value significantly following the securing of the approvals for the infrastructure development and planning.

It was in April 2016 that the PAC recommended that MOF Inc. take over direct ownership of Bandar Malaysia and TRX lands from 1MDB.

“The most efficient and cost-effective way to achieve this is via a transfer of TRXC and BMSB shares to MOF Inc.

“So, instead of owning those companies via 1MDB, MOF Inc will directly own BMSB and TRXC, along with all the assets and the operating debts of the respective companies,” he said.

Johari said as stated in page 81 of the PAC report, the TRXC & BMSB debts will be repaid by future cashflows of these companies.

“Further, whilst TRXC will continue to be 100% owned by MOF Inc., it is pertinent to note that a sale and purchase agreement has been executed with a consortium for the sale of 60% equity shareholding in BMSB,” he said.

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