Malaysia Investment Fund Misses Payment Again

1MDB, the troubled state owned investment company that threatens to become a millstone around the neck of Prime Minister Najib Tun Razak, has once again failed to meet a debt repayment to a consortium of Malaysian banks led by Maybank and Rashid Hussain Bank, both of which are owned by government-linked companies.

The massive losses faced by the investment firm, which is owned by Malaysia’s finance ministry, have led to fears that the country’s entire financial system could be threatened. Those fears abated somewhat late last week when T. Ananda Krishnan, the country’s richest tycoon and a crony of top United Malays National Organization leaders, apparently was called in to play white knight, loaning 1MDB RM2 billion to cover the overdue debt.

Ananda committed to inject the funds into Powertek Investment Holdings Sdn Bhd, a wholly-owned subsidiary of 1MDB. Ananda sold Powertek, then known as Tanjong Energy Holdings, to 1MDB in the first place for what was considered a vastly inflated RM8.5 billion, raising questions over just what was going on. The firm’s outstanding loans are said to amount to 4 percent of Malaysia’s gross domestic product.

The government for months has been struggling to build up the fund enough to be able to raise US$3 billion from sale of its power assets on the market but has been unable to do so because of the huge debt, which can’t be covered by cash flow, and because of other problems. Its auditors have resigned twice and its annual reports have been delayed repeatedly. The chief executive, Mohd Uazem Abdul Rahmaj, abruptly resigned in January, to be replaced by Arl Kandasamy, an Abu Dhabi-based Malaysian banker, who has vowed to put the fund back on a sound footing.

Government leaders have strong-armed at least three no-bid contracts for 1MDB to build coal-fired and solar power plants. One of those power plants, in Port Dickson near Malacca, was awarded to 1MDB despite a lower bid from a joint venture of YTL International Bhd and SIPP, partly owned by the Sultan of Johor. Despite these attempts to feed it lucrative contracts, there are questions.

Virtually since its creation in 2009, 1MDB has been controversial, partly because it came into being as the brainchild of Jho Taek Low, a young, high-flying entrepreneur with close ties to Najib and his wife Rosmah, and partly because a major initial loan was steered, apparently at Low’s suggestion, to a middle eastern oil exploration firm that had nothing to do with 1MDB’s original purpose, which was to seek out domestic investment. It is considered to have vastly overpaid for independent power producer units from both Ananda Krishnan and the Genting Highlands gaming interests.

It has since become a vehicle for former Prime Minister Mahathir Mohamad and his allies to pound Najib, the fund’s chief advisor. Mahathir has charged that the fund’s activities are opaque and unaccountable and questioned why Malaysia even needs the fund, since it has long had a major investment vehicle, Khazanah Nasional Bhd., for development of national interests.. Mahathir’s charges have been magnified by opposition leaders as well, weakening Najib both within his own party and nationally.

Earlier this week, A. Kadir Jasin, a former editor of the New Straits Times and considered a ventriloquist’s puppet for Mahathir, said on his blog that the government and taxpayers could be forced to bear the burden of the unpaid loans because the GLCs, Permodalan Nasional Bhd, and the Employees Provident Fund, had guaranteed bonds worth RM5 billion.

‎He pointed out that Fitch Ratings continues to maintain a negative outlook on Malaysia's sovereign ratings and implied it was because of the threat from 1MDB.

“The conclusion is, whether we like it or not,” he said, “the 1MDB issue has become an issue that affects us all and if it is not managed, it would burden us and our grandchildren for a long time to come. So we must understand and urge for the best action to be taken to prevent any disaster. This is one of the biggest burdens which tests the ability of Najib as the prime minister and finance minister."