Once started as the Terengganu Investment Company, this sovereign wealth fund in the state was renamed to 1MDB in 2009.
Originally, 1MDB was using Terengganu’s oil royalty to venture into Oil & Gas business. The Saudi’s PetroSaudi was roped in. They wanted to invest in renewable energy because that’s the future.
After two years, with RM11 billion fund placed in Cayman island, they can only put in an oil reserve in the Caspian Sea.
After realising how volatile the O&G industry is, they decided to abandon this project. Maybe because the oil in Caspian sea was not a renewable energy.
So the Saudi exited and replaced by the UAE’s Aabar. Together they form a company called Abu Dhabi Malaysia Investment Company (ADMIC).
Now we have been told this is not a sovereign wealth fund, but a strategic development company involved in the energy sector and real estate development.
Growing by incurring debt is normal. But growing with huge debt is another thing.
A 5 year-old company is not that old and experienced. More often than not banks will refuse to finance them. Therefore credit must be given to the management because they have the muscle to incur such huge debts.
Mind you we are talking about RM49.1 billion (current value). RM49,100,000,000.
Normally, this can only be made possible if the government persuade the local banks to lend or the government assure foreign banks of certain guarantee.
The government does not explicitly guarantee for most of its debt. But the government is still indirectly incurs the debts through the company because they are the government’s subsidiary company.
Aren’t they supposed to be a conservative investor and can’t make a loss? Already RM600 million was announced for last year.
The acquisition of its energy assets was not overpriced. But Ananda Krishnan strikes gold with RM2.5 billion profit. Why pay 42% more when there is no other competitive bidding for that asset?
The deal for Genting Power Plant is even more perplexing. Genting’s concession ends in February 2016. The same RM2.3 billion could be used to purchase a power plant in the Philippines with 17 years of concession.
Under whose world-class consultants did they pursue these transactions?
1MDB assets stood at RM51.4 billion. But these assets largely derived from the revaluation of land and energy assets. The asset is on paper, but the debt is real. And the fees paid to banks are also real.
What if the revaluation exercise goes wrong?
Remember, flipping the asset through Initial Public Offering (IPO) could also go wrong.