Govt will honour 1MDB’s debt obligations, Guan Eng says

Finance Minister Lim Guan Eng.

PUTRAJAYA: Finance Minister Lim Guan Eng today assured that the government will honour all debt obligations related to state fund 1MDB.

He was speaking at the Collaboration Programme Agreement signing ceremony between Putrajaya and Bombardier Hartasuma Corporation here.

1MDB’s debts of over RM30 billion, some of which are government-guaranteed bonds that Pakatan Harapan inherited from the previous Barisan Nasional administration, are said to be straining the nation’s coffers at a time when public expenditure is needed to stimulate economic growth.

When asked whether bondholders of 1MDB, Retirement Fund Inc (KWAP) and Tabung Haji debts would be converted to equity in the Bandar Malaysia project, Lim declined to answer.

“The government will honour all debt obligations of 1MDB,” he said without going into specifics.

The bulk of 1MDB’s bonds, amounting to RM24 billion, are believed to be held by foreign investors. The issuance of these debt papers, amounting to US$6.5 billion, was on the advice of Goldman Sachs.

The Islamic sukuk held by KWAP and Tabung Haji was issued in February 2014 to raise funds for the development of Bandar Malaysia. The debt papers were issued in two tranches, which generated yields of 5.85% and 6.05%, for seven and 10 years respectively.

According to a schedule of interest and principal payment for 1MDB debts released by the finance ministry, between March and May last year, the ministry made RM1.26 billion worth of interest payments on behalf of 1MDB.

Another RM810.2 million interest payment was due in the three months between September and November last year. In total, RM2 billion was needed to service 1MDB debts, exclusive of principal payments.

Similar interest payments are expected for this year and the following ones if the debts are not restructured.

KWAP has subscribed to RM1.4 billion worth of 1MDB sukuk. On top of that, the civil servant pension fund has extended RM4 billion worth of loans to SRC International Sdn Bhd, a former 1MDB subsidiary, for the purchase of a mining company in Mongolia.

Former prime minister Najib Razak is currently on trial over the alleged misappropriation of funds from SRC International.

Tabung Haji reportedly holds some RM920 million bonds in 1MDB’s real estate development Bandar Malaysia. The pilgrims’ fund also bought 0.63ha of land from 1MDB in the Tun Razak Exchange.

Last Friday, the government announced that it had decided to sell its 60% equity stake in the Bandar Malaysia project to IWH-CREC Sdn Bhd for RM7.41 billion, in a deal which the buyer agreed to advance a payment of RM1.24 billion within two months.

The remaining 40% is currently held by TRX City.

IWH-CREC is a 60:40 joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and state-owned China Railway Engineering Corp (M) Sdn Bhd (CREC). Businessman Lim Kang Hoo holds a 63% stake in IWH, while Kumpulan Prasarana Rakyat Johor Sdn Bhd owns the remaining 37%.

1MDB previously raised funds for the massive Bandar Malaysia development which covers 236ha of land at the former air force base near Sungai Besi.