Malaysian Finance Minister: 1MDB debt not sustainable

KUALA LUMPUR: For the first time, a Cabinet minister has admitted that 1Malaysia Development Bhd's (1MDB) financial position is not sustainable because its debts are too high.

Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said that 1MDB's gearing ratio, which is a measure of debt against capital, was 17 times and unsustainable at its present form. The higher the gearing ratio, the worst off the company.

"The financial experts have said that the gearing was not sustainable. This is why 1MDB has embarked on an exercise to rationalise and consolidate its assets," he said in reply to a question from Mohd Fasiah Mohd Fakeh (BN-Sabak Bernam) in Parliament yesterday.

In an effort to consolidate its assets, Ahmad Husni said that 1MDB was in negotiations to transfer a power plant project that would cost RM8bil to construct.

"1MDB is in negotiations to transfer the project," he said.

In March last year, 1MDB was awarded a project to build a 2,000MW power plant in Port Dickson, fending off a close challenge from a joint venture of YTL Power International Bhd and SIPP Energy Sdn Bhd.

The power plant was supposed to be the anchor for 1MDB to list its energy unit that was scheduled to take place in the first quarter of this year.

However, the strategic investment fund that has the Government as its sole shareholder withdrew its submission to the Securities Commission two weeks ago.

1MDB has come under scrutiny for its debts of RM49bil (S$18.3 billion) and assets of RM51.4bil as at March 31, 2014. Of the debts, a sum of RM42bil is long-term liabilities and tied to its power plants that were acquired at a premium in 2012.

The scrutiny on 1MDB's debt increased over the last two years as the entity was set up only in 2009. It was alleged to have undertaken transactions with foreign entities that were not in its favour.

Towards this end, the Government has given the mandate to the Auditor- General's office to conduct an audit of the books.

After the listing of its energy unit, 1MDB could be holding as little as 20 per cent in the company, a move that will see its gearing reduce to three times.

The 1MDB power plant is to be commissioned in 2018, but last week, StarBiz reported that the fund would report back to the Energy Commission on the status of the project.

It has been reported that Tenaga Nasional Bhd would likely step in and be a partner to see the project through.

Ahmad Husni also said that 1MDB had assets in the form of property such as the Bandar Malaysia project, the Tun Razak Exchange and land in Pulau Indah and Penang.