Rare move by previous govt to demand cash from Khazanah

  • Business
  • Friday, 25 May 2018

A total of RM3bil in bonds were redeemed, some to settle 1MDB debts

PETALING JAYA: The previous government’s redemption of a RM1.2bil debt paper issued to Khazanah Nasional Bhd in August last year is one of the rare occasions where it demanded for cash from its investments in the Malaysian sovereign wealth fund.

Apart from the payment of RM1.2bil in August last year, the government also redeemed RM1.8bil of RM3bil redeemable convertible cumulative preference shares (RCCPS) on March 14, 2014.

The Ministry of Finance (MoF) confirmed a report that the proceeds from the redemption of the RM1.2bil RCCPS from Khazanah were used to settle some of the liabilities 1Malaysia Development Bhd (1MDB) owed to International Petroleum Investment Corp PJS (IPIC).

The MoF also used proceeds from the sale of land to Bank Negara for RM2.07bil to settle 1MDB’s debt obligations to Abu Dhabi’s IPIC amounting to RM5.05bil in December last year.

Khazanah had issued the RCCPS to its sole shareholder, which is the MoF, on March 7, 2011.

Sources said the only cash payment that the government gets from Khazanah is the annual dividend of RM1bil, or on some occasions RM2bil.

“Most of the other liabilities between Khazanah and the government are set off by payment in kind. For instance, the government sold the land in Singapore to Khazanah. It was set off by liabilities that the government owes Khazanah.”

Khazanah, which is wholly owned by the MoF, undertakes several initiatives on behalf of the government and any payments due are normally settled in kind. For instance, Khazanah spent more than RM5bil on the Malaysia Airlines (MAS) rationalisation scheme.

It was supposed to get RM6bil from the government in its efforts to resuscitate MAS. Sources said this amount has yet to come from the government.

Sources said that the redemption of the RCCPS and the demand for payment in cash were the first time that there was an actual cash transaction apart from the annual dividend payment.

“Normally, the government does not demand cash from Khazanah. The exception was the redemption of the RM3bil bonds,” said a source.

In April 2017, 1MDB, the financially troubled government fund that is the subject of a massive investigation by the Pakatan Harapan government, reached a settlement with IPIC after it defaulted on a bond obligation.

1MDB’s default caused IPIC to file for arbitration in a court in London claiming US$6.5bil.

This forced 1MDB and the MoF to seek a settlement with IPIC, which resulted in the Malaysian entities being obliged to pay IPIC US$1.2bil in two tranches.

1MDB made the first payment of US$600mil in August last year, missing the deadline of July 31.

The final payment of US$600mil was made on Dec 27, a few days short of the Dec 31 deadline.

Early this year, there were already reports of the MoF using proceeds from the sale of the land to Bank Negara to settle the debt obligations with IPIC.

However, the MoF was silent on the matter.

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