What price will Malaysia pay as the embattled 1Malaysia Development Bhd, the state-backed investment fund, sells power plants to China General Nuclear Power Corporation?
Or, for that matter, China’s promise to buy lots of Malaysian government bonds to prop up the ringgit when its weakness has become a major political liability for Prime Minister Najib Razak? The currency has lost more than 20 percent of its value in the past year.
1MDB announced on Nov. 23 that it will sell its power assets to CGNPC for RM9.83 billion (US$2.3 billion at current exchange rates). CGNPC will assume all gross debt and cash of the 1MDB entity, Edra Global Energy Bhd. and its subsidiaries. The transaction is expected to be completed in February according to the statement.
1MDB has become a millstone around the prime minister’s neck, with at least four domestic investigations going as well as probes in the United States, Singapore, the UK and other countries, and with a semi-public dressing down by the President of the United States over the imprisonment of opposition leader Anwar Ibrahim. Najib serves as chief financial advisor to the fund.
Najib knows he must bury the 1MDB scandal, in which an unknown amount of its US$11 billion in debt appears to be unfunded, as deeply as he can and then hope to call an election while the opposition is even more divided than the Barisan Nasional, the ruling national coalition led by the United Malays National Organization, the party he heads.
The only way to do that is to sell off 1MDB assets and get debt down to levels which might look tolerable. Anyone who pays over-the-odds for assets in such circumstances, as GNPC appears to be doing will expect a return. In the case of a major Chinese state enterprise, this will undoubtedly be measured in political more than commercial terms.
Malaysian leaders are forever proclaiming themselves Malay nationalists, stirring communal frictions in the process. But the reality is that money so often speaks louder than words. Having become used to receiving checks for doing nothing in the name of the New Economic Policy and wealth re-distribution, the UMNO leaders are easy prey for those who combine a political agenda with large bags of cash. The Ali-Baba syndrome, in which ethnic Chinese provide capital and labor and Malays the political entrée while acting as figureheads and doing very little, is alive and well at state as well as enterprise level.
Nor is this new. It is worth recalling that over the course of a century the British took control of the entire Malay Peninsula except for the Pattani Sultanate (which wanted to get out from under Thai control but failed) without firing a shot.