The Singapore Business Times reported that 1Malaysia Development Bhd (1MDB) CEO, Arul Kanda Kandasamy has confirmed that the company will not repatriate the US$1.1 billion (RM3.9 billion) recently “redeemed” from the Cayman Island investments. The reason was that “the money will be used to service the firm’s debt interest payments”.
“There’s a very sensible and simple reason for that. We are keeping the money in US dollars as we have US$6.5 billion (RM23.06 billion) in bonds out there, in which interest payments come up to nearly US$400 million (RM1.4 billion) a year,” he was quoted saying in the report.
The excuse given by Arul Kanda must have completely puzzled and tickled the readers of Singapore Business Times out there.
1Malaysia Development Bhd (1MDB) has a RM2 billion loan due to be repaid on the 31 January 2015. This loan was originally to be paid in November 2014, before being rescheduled twice. This RM2 billion loan itself is part of a rescheduled and restructured debt it couldn’t pay in November 2013.
1MDB is clearly struggling to raise the neecessary funds to repay the above loan to Maybank Bhd and RHB Bank Bhd. Despite that, the newly appointed CEO can actually tell the investment public with a straight face that they are reserving the RM3.9 billion “cash” they have overseas for “future” interest payments of their other debts.
What Arul Kanda is telling us is that he would rather set aside the RM3.9 billion alleged “cash” overseas to pay for interest payments amounting to US$400 million (RM1.4bn) a year due some time in the future despite the fact that 1MDB has a RM2 billion loan which is already overdue.
Does he actually expect Malaysians out there to naively believe him?
Can Arul Kanda explain why can’t just a RM2 billion portion out of the RM3.9 billion redeemed be used temporarily to repay the overdue loan first while awaiting the much-hyped initial public offering of its energy subsidiary to raise additional capital? Surely any currency exchange rate difference during the period could be easily hedged? And surely the cost of such a hedge in the forex markets would be puny relative to the type of fees 1MDB is used to paying Goldman Sachs who arranged their bond issuance? Or for that matter, puny relative to the penalty interest 1MDB must be paying now on the overdue RM2 billion?
Can Arul Kanda also explain why 1MDB would rather beg for a temporary loan from local billionaire Tan Sri Ananda Krishnan, on terms which could not possibly be favourable to the company to repay this immediate RM2 billion loan, instead of using the existing company funds?
The new CEO of 1MDB was touted as a debt-restructuring expert when he was first appointed and came into the limelight will all his guns blazing. However the latest dumbfounding statement by him to explain the inexplicable actions of 1MDB leaves one with few options but to conclude that he is firing blanks.
At stake here is the stability and credibility of the entire Malaysian financial system. If 1MDB defaults on the RM2 billion loan, then the entire outstanding debt of 1MDB becomes due. Under such circumstances, the Malaysian financial system may collapse under enormous stress while the Government’s credit ratings is bound to take a massive hit.
The Government must immediately come clean with the above debt situation in 1MDB, which has even become a laughing stock in the international financial press – Wall Street Journal, Financial Times and now the Singapore Business Times. I continue to reiterate my earlier call for Dato’ Seri Najib to instruct a special audit of 1MDB by the Auditor-General or a reputable independent auditor to uncover its financial shenanigans.