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Wednesday, February 11, 2015

1MDB’s failure to repay debt will trigger default of other loans, warns DAP

A picture of the Tun Razak Exchange, a development by state strategic investor 1Malaysia Development Bhd. DAP warns that the firm’s inability to pay off its RM2 billion loan will trigger an automatic default on its other loans which are more than RM42 billion. – Pic courtesy of skyscrapercity.com, February 11, 2015.A picture of the Tun Razak Exchange, a development by state strategic investor 1Malaysia Development Bhd. DAP warns that the firm’s inability to pay off its RM2 billion loan will trigger an automatic default on its other loans which are more than RM42 billion. – Pic courtesy of skyscrapercity.com, February 11, 2015.
State strategic investor 1Malaysia Development Bhd’s (1MDB) failure to repay the RM2 billion loan for its power unit on time will trigger an automatic default of its other loans exceeding RM42 billion, warned DAP.
The opposition party’s national publicity secretary Tony Pua said this would negatively affect Putrajaya’s and Malaysia’s financial system.
"The moves of 1MDB and explanations given previously by Arul Kanda are completely inexplicable," he said, referring to the company's newly appointed group executive officer Arul Kanda Kandasamy.
"A RM42 billion default will have a devastating impact on the Malaysian financial system and the government’s finances and credibility," he told The Malaysian Insider in a Whatsapp message today.
The Malaysian Insider reported today that according to sources Malaysian bankers will trigger an event of default (EOD) if 1MDB failed to repay a RM2 billion loan for its power unit taken in May 2014.
The loan has been rolled over twice with the last deadline being last month and is part of a RM5.5 billion debt taken by a unit of the company wholly owned by the Finance Ministry.
The 1MDB subsidiary, Powertek Investment Holdings Sdn Bhd, took the loan last May to refinance a RM6.17 billion bridging loan taken in 2012 to part finance the purchase of power assets.
The remaining RM3.5 billion has been converted into a 10-year term loan due in August 2024.
"A line has been drawn in the sand and its February 18 or the EOD will be triggered," a source familiar with the matter told The Malaysian Insider.
Maybank has 58.99% of the RM2 billion loan while RHB has 32.41%. The other lenders are Alliance Investment Bank Bhd (4.06%), Malaysia Building Society Bhd (3.24%) and Hwang DBS Investment Bhd (1.29%).
EOD is an action or circumstance that causes a lender to demand full repayment of an outstanding balance sooner than its original due date.
Pua, who is one of 1MDB’S chief critics, questioned if the company was still adamant on not using its Caymans funds, which had been redeemed, to pay the RM2 billion loan.
On Sunday, Singapore Business Times quoted Arul Kanda as confirming that the US$1.103 billion Caymans funds would not be brought back to the country as it would be used to service interest payments on US dollar debts.
Last month the company said it had redeemed in full the US$2.318 billion (RM8.24 billion) invested in a Caymans fund.
In a statement, 1MDB had said it had previously redeemed US$1.215 billion, which is 60% of the funds invested, and has now taken back the remaining US$1.103 billion.
"The same question remains for 1MDB. Is it going to leave its billions of ringgit in alleged cash overseas for purposes best known to 1MDB themselves and allow the paltry RM2 billion loan to default come February 18?"
When asked, 1MDB declined to comment on this matter.
The Malaysian Insider also reported that other sources have confirmed that a letter to that effect has been sent to 1MDB, which has been negotiating a loan with tycoon T. Ananda Krishnan to repay the debt.
It is not known if the media-shy billionaire has agreed to provide the loan. But critics said it was unprecedented for a government-owned firm to be indebted to a citizen.
1MDB, which owns 16 power and desalination plants in six countries, has been dogged by controversy over its nearly RM42 billion debt pile and criticised for a perceived lack of transparency.
- TMI

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