Minister in the Prime Minister’s Department Abdul Wahid Omar has come out admitting that the nation’s sovereign development fund 1Malaysia Development Berhad (1MDB) has a burdensome debt problem, and promised the state-owned company will not be taking in any new loans.
The minister, who is also the former CEO of Maybank, said 1MDB’s debt has proven to be ungainly, due to its failure to generate enough revenue to pay off its accrued debts.
“So far, 1MDB has expanded by borrowing from banks and venture capital firms, as well as buying up assets, as well as acquiring numerous assets including Independent Power Providers (IPP), to the point that it now owes RM4.2 billion as of March 2014.
“So you can imagine how much of a burden this debt actually is – the debt is very large, and hard to pay off,” he said today, as quoted by The Malaysian Insider‘s Md Izwan.
“Until 1MDB’s assets start generating revenue, 1MDB will not be sustainable.”
Wahid added that in light of these issues, three major steps have been decided on with the aim of placing 1MDB back on the path of eventual profitablity.
“They (1MDB) have decided to take strategic measures to reassess their business model and capital structure, through three initiatives,” he said.
The three recalibrations to 1MDB’s business practices include a full stop to taking in more loans, refocusing on the compan’s flagship development projects, namely the Tun Razak Exchange (TRX) and Bandar Malaysia, and ensuring the planned initial public offering (IPO) for the power company it owns, Edra Energy, is carried out as soon as possible.
1MDB is wholl owned by the Finance Ministry. In the fiscal year ending March 2014, the sovereign fund recorded a loss of RM665.4 million after taxes, over revenue worth RM4.26 billion.
That annual loss might have been even more severe if it had not been for 1MDB’s favourable reevaluation of its real estate assets, now worth RM896.8 million.
1MDB’s long-term liability now stands at RM33.5 billion as of March 2014, a 27% increase over its 2013 debt of RM26.3 billion.
1MDB’s short-term debts amount to RM8.3 billion.
As the Finance Minister, chairperson of 1MDB’s board of advisers, and the Prime Minister, Najib Razak has been under increasing fire of late for the dire straits 1MDB has gotten itself into.
This culminated with the open call by former PM Dr Mahathir Mohamad for Najib to step down over his failure or refusal to explain the cause of 1MDB’s problems, and over the alleged links between 1MDB, Najib’s family, and billionaire venture capitalist Jho Low, who was said to have been an adviser to the company.
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