Bring in the Marines

Finally, Government has brought in the MOF in-house consulting group which has tremendous illustrious experience in capital restructuring, debt recovery and cash-flow management, as a solution to resolve 1MDB’s woes which drew too much attention and a lot of flak from so many quarters.

The Star story:

Prokhas steps into 1MDB

Wednesday, 8 April 2015

PETALING JAYA: Prokhas Sdn Bhd, the in-house restructuring outfit of the Finance Ministry (MoF), has been tasked to help sister company 1Malaysia Development Bhd (1MDB) deal with cash-flow problems tied to its debt obligations.

It is learnt that Prokhas was roped in to assist 1MDB, which needs about RM5bil this year to meet its debt obligations.

“Prokhas has come into the picture, which is why CIMB Investment Bank Bhd that was appointed two weeks ago to look into the sale of 1MDB’s energy assets has been out of the job,” said a source.

The amount due this year is largely to cover the payment of a US$975mil term loan taken by 1MDB Energy Holdings Ltd that falls due on Aug 31 this year. At the current exchange rate of 3.64 to the US dollar, the maturing term loan is valued at RM3.55bil.

1MDB Energy Holdings is the energy unit of 1MDB that was supposed to list by the first quarter of this year under the new name of Edra Global Energy Bhd. But 1MDB withdrew its proposal on Feb 28 this year because it could not meet the listing requirements.

“CIMB was roped in to arrange for the sale of Edra Energy, which is about the only asset that can be sold immediately to raise funds for 1MDB to help meet its debt obligations,” said a banker.

But its mandate was terminated on April 1 – just a week after the investment bank was appointed.

The other portion of the RM5bil obligation this year comes from interest cost totalling around RM1.4bil on all other outstanding loans that 1MDB has taken over the last five years.

1MDB is RM41.9bil in debt to fund a buying binge over the past five years, as the company built up a portfolio of power and energy assets, as well as amassing prime landbanks earmarked for future development.

While the power plants acquired from Genting Bhd and Tanjong Plc are generating some cashflow for the company, it is not enough to cover its interest cost and planned development expenditure.

Last year, 1MDB had to defer a debt payment taken to finance the purchase of Tanjong’s power plants in 2012 for RM8.5bil.

An outstanding amount of RM2bil was finally settled with the assistance of billionaire T. Ananda Krishnan, who owns Tanjong, after two delays.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had, in his winding-up speech in Parliament on March 25, said that the Government had formed a special task force to look into 1MDB’s performance, as well as the debts borne by the firm.

He had earlier in March told Parliament that 1MDB’s financial position was “unsustainable” with a cashflow problem.

The Government, Husni said, had already extended RM950mil to 1MDB as a “standby credit” facility to address its short-term financial needs.

The firm generated a revenue of RM4.26bil for the year ended March 31, 2014, but reported a loss of RM665mil as finance cost ballooned to RM2.4bil.

As it is, 1MDB’s total US dollar-denominated borrowings stand at a staggering US$7.5bil, or RM27bil, at the current exchange rate.

Based on these outstanding debts, 1MDB’s interest payment cost amounts to at least RM1.2bil a year over the next seven years.

In 2022, the massive US$3bil bonds taken by 1MDB Global Investment Ltd will reach maturity.

1MDB is 100%-owned by the MoF, but unlike other Government-linked investment companies, the ministry has never had board representation in the company.

But as worries about 1MDB’s financial obligations are reaching a boiling point, the Government has taken a more active role.

Prokhas is a special project outfit under the MoF and is involved in various corporate restructuring work for the Government. The company was set up in 2005 to take over the role of Danaharta Nasional Bhd.

***************

Pro-Khas was an SPV created by then Minister of Finance Tun Dr. Mahathir Mohamad as a solution after the Asian Financial Crisis of 1997-8 saw the 38 banks and financial institutions were laden with bad debts and non performing loans.

It came into operation the day Tun Dr. Mahathir took the reign of the MOF and the economy, which was bleeding due to the currency attack mounted by hedge fund managers led by George Soros.

All of these bad debts and NPLs were taken over by Danaharta and systematically hived off, so that the financial institutions could focus on their business as banks and finance companies.

Amongst the outcomes are the banking system and capital-debt market did not crash and completely paralysed commerce and the economy. The rationalisation of the banking-financial system and capital-debt market provided opportunity where local banks are merged into six groups and the fittest stockbrokers survived.

That provided opportunities for new universal stockbroking licenses were issued then onwards and boutique investment bankers started to colour the capital-debt market, which provided the catalyst to commerce and expand the economy.

This is something that Prime Minister Dato’ Seri Mohd. Najib Tun Razak should have taken much earlier and quashing the opportunity for so much loose talk and speculations been made about the Government’s strategic investment house.

Pro-Khas is a very familiar and credible entity to resolve capital-debt related issues, which was initiated by the Government and put the debt and capital market back on track in a short span of time.

The same time, transparency is required to absolve the leadership and 1MDB which undergone so much attention in bad light and put 1MDB back on track.

Amongst many other programs designed for the majority of Malaysians in the rural areas, 1MDB has been providing a lot CSR projects, especially in utmost remote and under developed areas and settlements. It specifically enabled the fast track solution which alleviated the delivery of infrastructure such as electrification, processed water and communications.

This initiative is a good move indeed. Never the less, the story about 1MDB still needed to be told for all the right reasons.

Published in: on April 8, 2015 at 11:00  Comments (4)  

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4 CommentsLeave a comment

  1. All this “capital restructuring, debt recovery and cash-flow management” beats me, but let me touch on general matters concerning the problem.

    I’m glad that further action is now being taken. Let it be the Marines, Pasukan Gerak Khas or whatever, so long as they have the real expertise and, more importantly, the genuine intention of finding the wrongs in order to know how to right them. No cover ups, no glossing over, but hard knocking on getting the facts so that remedial action can be fully and effectively taken. A huge sum of public money is at stake.

    I note that Prokhas is an in-house MOF restructuring outfit and that 1MDB is a sister company. Tun Dr Mahathir has made scathing attacks on DS Najib in his blog, quoted by the mass media, especially in the last week. And Najib has appeared on an hour-long TV programme to explain.

    The fact that Najib has instructed the Accountant General to audit the 1MDB accounts may not clear people’s doubts as the AcG is part of the Establishment and and some call it only as an “internal audit”. But Najib instructing that the AcG audited accounts be sent to the PAC lends credibility to Najib;s intentions as PAC membership includes Opposition MPs. Still, questions may still be asked as to how much access PAC would have to 1MDB accounts and whether PAC would be only be looking at the AcG-audited accounts.

    • But then has PAC got the clout? Has the supposed-to-be watchdog got teeth? They have been crying for respect and recognition of their role by the Ministry of Finance/ Treasury.

      PAC: Ministry didn’t get back to us
      The Star Online – ‎1 hour ago‎

      THE Public Accounts Committee Chairman said “.. until today, the Treasury had failed to follow the rules on reporting back.” He was referring to PAC recommendations concerning the recurring issues that crop up in the Auditor-General’s annual report.

      He laid the blame on the Finance Ministry as it was responsible for instructing the Auditor-General’s Department to conduct the yearly Government audits.

      If what he says is correct, then the Accountant General is very much an internal audit department and not an independent body.

  2. Agree fully that “the story about 1MDB still needed to be told for all the right reasons.”

    Pro-Khas might have been a “very familiar and credible entity to resolve capital-debt related issues” during Tun Dr Mahathir’s time. TDM, despite so many allegations of cronyism during his 22 year rule, did appoint those “cronies” who were really qualified and experienced. He succeeded in getting Malaysia out of the Asian Financial Crisis without resorting to and being dictated by the World Bank and the Asian Development Bank.

    I wonder about the performance and the key personnel of Pro-Khas since then – if they have been tested by any crisis since the Asian Financial Crisis. And very importantly, what instructions and leadership from the political masters they receive and the discretion they are allowed and will use.

    Anyone willing to provide facts and arguments to show that the current key personnel are as formidable as during TDM’s time is welcome. Of course those key personnel during TDM’s time are no longer in service.

    • Capital controls and the Ringgit pegged at 3.80 to the US Dollar.

      Fast forward to now and the US Dollar is worth RM3.63, according to the forex market (something dismissed as “irrelevant” during the capital controls regime). With possibly more downside when the Fed starts “normalising” interest rates.

      Maybe Tun Dr Mahathir is upset that the legacy post-capital controls has been dissipated by “wasteful” government spending, compounded by a weak Ringgit and burgeoning foreign currency debt.

      Bank Negara has insisted that the travails of 1MDB do not pose a “systemic risk” to the Malaysian banking system.

      Perhaps Tun doesn’t share this view!


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