During the Budget 2015 winding up speech by the Deputy Finance Minister, Datuk Ahmad Maslan last Thursday, he boasted that 1MDB has never failed to fulfill its financial obligations according to the scheduled repayments. He asserted that 1MDB is on strong financial footing and possesses assets with proven performance with strong growth opportunities. He said (Hansard 6/11/14):
1MDB tidak pernah terlepas daripada memenuhi obligasi jadual pembiayaan kewangannya. Kedudukan kewangan 1MDB tetap kukuh disokong oleh aset-aset strategik yang mempunyai rekod prestasi yang terbukti di samping mempunyai peluang-peluang pertumbuhan yang utuh.
What the Deputy Finance Minister has failed to highlight and refused to answer when questioned was the fact that 1MDB has had to urgently extend, restructure and refinance RM6.17 billion of debt twice in the past year.
As revealed in the Financial Statements for March 2014 submitted to the Companies Commission last week, 1MDB had to extend for 6 months a syndicated bridging loan amounting to RM6.17 billion when it became due on 22 November 2013. When the sum became due again in May, 1MDB only managed to repay RM670 million. The company had to refinance the loan via a RM5.5 billion term loan facility.
The Singapore Business Times has reported that 1MDB’s debt rescheduling came at an expensive price of 2.5 per cent interest above the annualised cost of funds, on top of the RM20 million to RM30 million in upfront fees.
The struggle 1MDB faced in repaying its loan as well as the price the company agreed to reschedule the loan certainly provides clear evidence that the company is facing financial difficulties in balancing its cashflow.
What’s more, 1MDB just missed the third deadline to pay up for a mere RM317.3 million land acquisition from Tadmax Resources Bhd. After paying the 10% deposit for the land in February 2014, 1MDB had been unable to make payment for the balance of the transaction despite shifting the deadline from August 20th to September 30th to October 10th and lastly to October 31st.
1MDB now risks forfeiting the RM31.7 million it paid in deposit to Tadmax Resources. Perhaps the only reason why Tadmax hasn’t already forfeited the deposit is because 1MDB agreed to pay well above the market price for the piece of land at RM23.50 per square feet (psf) despite it being valued at only RM9.93psf in August 2011. Tadmax Resouces, infamous for its subsidiary, Kuala Dimensi Sdn Bhd which was the main contractor for the RM12.5 billion Port Klang Free Zone scandal, is probably still hoping for a bumper pay day from 1MDB.
The above events clearly proves the financial difficulties faced by 1MDB and explains the reason for the Government’s desperation to award new multi-billion ringgit power plant contracts to 1MDB as well as the push for a listing of the energy subsidiary as soon as possible.