The fund’s latest financial accounts ending March 31, 2013 viewed by StarBiz showed that of the total borrowings, a total of RM28.22bil of its loans and bonds were secured.
Interestingly, 1MDB’s only unsecured loan of US$3bil (RM9.9bil) came with a “letter of comfort” from its shareholder – MoF Inc.
This amount was raised by its subsidiary, 1MDB Global Investments Ltd, and the proceeds are to be used as seed capital for the development of the Tun Razak Exchange project along Jalan Tun Razak in Kuala Lumpur.
The interest on the unsecured private debt securities of US$3bil is at 4.4% per annum, which surprisingly is lower than the rates charged on some of the loans that were guaranteed by the Government.
Generally, the interest rates on the loans backed by guarantees were between 4.04% and about 6%. For papers that are backed by assets of 1MDB such as its land, the interest rates that the market charges the fund is higher at between 7% and 8%.
For instance, a RM330mil redeemable bond that had been issued with maturity periods between 6.5 and 13 years and secured against the assets and properties of 1MDB carried the highest cost of funds, ranging between 7.1% and 8.35%.
The biggest loan that is guaranteed by the federal government is the maiden RM5bil Islamic medium-term notes that were raised when the fund started in 2009. The 30-year bond issue was priced at an annual rate of 5.75%, a level considered high for a Government-guaranteed bond.
The only other secured loan that is fully guaranteed by the Government is an RM800mil term loan with a tenure of 10 years maturing in 2022.
Repayment of the principal is over 14 instalments beginning April 2016 with interest charged on a half-yearly basis at 4.04% per year.
As to the corporate guarantee issued by companies from Abu Dhabi, it is mainly for the US-dollar debt papers that 1MDB had taken to purchase power plants from the Tanjong and Genting groups.
International Petroleum Investment Co PJSC (IPIC), which is an investment company of the Abu Dhabi Government, had guaranteed US-dollar debt papers to the tune of US$3.5bil to help 1MDB fund the purchase of the power plants.
In return for this corporate guarantee from IPIC, 1MDB has given a 10-year option to Aabar Investment PJS to acquire up to a 49% equity interest in both the power plants.
There is a refundable deposit held aside as collateral for the guarantee by IPIC and part of 1MDB’s strategy to list its energy assets, which is targeted within the next one year.
The term loans taken by 1MDB to purchase the power plants are expensive, as they are charged at the cost of funds plus a margin of 2% per year that is payable at intervals of three months.
To buy the Tanjong group’s power plant, 1MDB had taken up a term loan of RM6.17bil, while the syndicated bridging loan to part-finance the Genting group’s power-generation unit was RM607.52mil.
This is also guaranteed by the company with interest payable on a quarterly basis at the cost of funds plus a margin of 2% per year.
IPIC cash injection against the laws of Malaysia? Malaysia’s External Loans Act 1963 may mean IPIC gets nothing
by Ganesh Sahathevan
The 4th of June 2015 was the date by which the Government of Malaysia (GOM) said the UAE’s International Petroleum Investment Company (IPIC) would settle its debt of approximately USD 1 billion owed to a consortium led by Deutsche Bank.
Recall however that this debt deal was announced without it being deliberated by Parliament.Subsequently it does not look like it has been gazzetted, as required by Malaysia’s External Loans Act 1963.
Prima facie it does appear as if the GOM is not allowed by its own laws to accept funding in any form from IPIC,or from anyone else for that matter , unless duly authorized by Parliament. For IPIC this means that even if that USD 1 billion has been payed over,whatever the GOM has promised pursuant to the deal may be ruled illegal, and IPIC may not get anything in return.
The relevant legislation is provided below for reference,and readers are reminded that these rules are in place to ensure that government spending and borrowing is properly regulated,and politicians are restrained from driving the country off a fiscal cliff.
AUTHORITY TO BORROW Power to raise external loans, and application of sums raised
2. (1) The Minister (that is to say, the Minister for the time being charged with responsibility for finance) may from time to time raise loans outside Malaysia— (a) for the purposes of the Federal Development Fund or some one or more of those purposes; or (b) for the repayment or amortization of loans raised outside Malaysia, whether under this section or not.
(3) The sums raised under this section shall not exceed the sum specified from time to time by the Yang di-Pertuan Agong by order published in the Gazette and such order shall as soon as possible after its publication be laid by the Minister before the Dewan Rakyat; and in applying this subsection sums raised in a currency other than ringgit shall be converted into ringgit as at the day when the amount to be raised is determined and by the use of such rate of exchange as the Governor of Bank Negara may certify to be then appropriate
(4) Subsections (1), (1A) and (2) shall authorize the Minister to include among the terms and conditions of any external loan provisions for exemptions from taxes or for exempting from exchange control the debt charges or any description of debt charges in respect of an externalloan; and the Minister shall by order make such provision as he considers necessary to give effect to any such exemption from tax or from exchange control, and any such order shall have effect notwithstanding anything in any written law relating to the tax, or to exchange control, as the case may be.
(6) All debt charges in respect of any external loan shall be charged on the Federal Consolidated Fund (as provided by Article 98 of the Federal Constitution), and subsections (1), (1A) and (2) have effect subject to that Article. (7) In this section “debt charges” includes interest, sinking fund charges, the repayment or amortization of debt, and all expenditure in connection with the raising of loans and the service and redemption of debt created thereby