The Malaysian Cabinet has rejected an application from sovereign development fund 1Malaysia Development Berhad (1MDB) for a RM3 billion cash injection to pay off its ballooning debts, making it all that much harder for the Federal Government’s investment arm to crawl out of the red.
The Malaysian Insider reports that a majority of Cabinet ministers were not on board with pumping in more money into the ailing 1MDB’s coffers.
“The Cabinet rejected the proposed RM3 billion cash injection for 1MDB,” a source told TMI.
Another source intimated, “Options are narrowing for MoF as 1MDB cannot raise its own funds right now. It basically needs money from its only shareholder, the government.”
1MDB is a wholly-owned corporation under the Ministry of Finance. Prime Minister Najib Razak, who is also Finance Minister, serves as the head of 1MDB’s advisory board.
Two weeks ago, 1MDB received a RM2 billion loan from local magnate Ananda Krishnan just in time to pay off a debt whose deadline had been pushed back twice.
However, the company still owes more than RM42 billion in total, sending the price of its bonds into freefall and threatening the credit rating of the Malaysian government as a whole.
“The size of its debt of RM42 billion, the massive negative cash flow it has experienced in the last two years plus its struggle to pay the RM2 billion, make it difficult for any bank to lend to them,” says one banker.
“Bond investors will also shy away from any new debt it wants to issue.”
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