Why can’t 1MDB use Cayman funds to pay off RM2 billion debt, asks DAP

1MDB CEO Arul Kanda Kandasamy should explain why the firm is not using its Caymans fund to repay its RM2 billion debt to Maybank and RHB Bank, says an opposition MP. – Reuters pic, February 8, 2015.

1Malaysia Development Bhd's (1MDB) ‎move not to use the remaining US$1.1 billion ( RM3.9 billion) Cayman Islands fund it had redeemed to pay off an overdue RM2 billion loan has puzzled DAP.

DAP national publicity secretary Tony Pua said ‎CEO Arul Kanda Kandasamy should explain why a portion of the strategic development firm’s Caymans fund could not be used to repay the loan, which had been restructured twice and was due to be repaid last month.  

‎"Can Arul Kanda explain why can’t just a RM2 billion portion out of the RM3.9 billion redeemed be used temporarily to repay the overdue loan first while awaiting the much-hyped initial public offering of its energy subsidiary to raise additional capital? 

"Surely any currency exchange rate difference during the period could be easily hedged? And surely the cost of such a hedge in the forex markets would be puny relative to the type of fees 1MDB is used to paying Goldman Sachs which arranged their bond issuance? 

"Or for that matter, puny relative to the penalty interest 1MDB must be paying now on the overdue RM2 billion," he said in a statement today. 

Last month, Arul Kanda had said the company had redeemed in full the US$2.318 billion (RM8.24 billion) invested in a Caymans-registered 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.

In its report yesterday, Singapore Business Times quoted Arul Kanda as confirming the US$1.103 billion ‎would not be brought back to the country as it would be used to service interest payments on US dollar debts.

“There’s a sensible and simple reason for that. We are keeping the money in US dollars as we have US$6.5 billion (RM23.06 billion) in bonds out there, in which interest payments come up to nearly US$400 million (RM1.4 billion) a year,” he was quoted saying in the report.

Pua said it was obvious that 1MDB was struggling to raise money to repay the overdue RM2 billion to lenders, bankers Maybank Bhd and RHB Bank Bhd.  

Despite this, the Petaling Jaya Utara MP said Arul Kanda could adopt a "straight face” to tell the public that the company was reserving the overseas RM3.9 billion "cash" for "future” interest payments of other debts.  

‎"What Arul Kanda is telling us is that he would rather set aside the RM3.9 billion alleged 'cash' overseas to pay for interest payments amounting to US$400 million (RM1.4 billion) a year due sometime in the future despite the fact that 1MDB has a RM2 billion loan which is already overdue.

"Does he actually expect Malaysians out there to naively believe him?" he asked, adding that the latest "dumbfounded" statement by the new CEO showed that he was "firing blanks".

He also wanted Arul Kanda to explain why 1MDB would rather "beg" for a temporary loan from billionaire magnate T. Ananda Krishnan, on terms which he claimed would not be favourable to the company to repay this immediate RM2 billion loan, instead of using existing company funds. 

The Edge Financial Daily reported on January 30 that the tycoon had firmed up an agreement to loan 1MDB the RM2 billion it needed ‎as an interim measure to settle its debt with Maybank and RHB Bank.

“It (the loan) is more for 1MDB to clear this obstacle – the two banks – than anything else. The two (parties) are still looking at how to resolve the issue,” the report had quoted sources as saying.

In calling for Putrajaya to come clean on 1MDB's financial situation and reiterating his call for a special audit on the firm, Pua said, at stake, was the stability and credibility of the entire Malaysian financial system. 

He said if 1MDB defaults on the RM2 billion loan, then the entire outstanding debt of 1MDB becomes due. 

"Under such circumstances, the Malaysian financial system might collapse under enormous stress while the government’s credit ratings are bound to take a massive hit."

- TMI