IPIC deal seen as indication of 1MDB winding down

PETALING JAYA: Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah (pix) may have denied that the latest deal by 1Malaysia Development Bhd is part of a bid to wind down the strategic development company by early 2016, but all indications point to a break-up of 1MDB as it is known currently.
It is understood that serious discussions are under way with several parties and the Finance Ministry remains confident of resolving 1MDB's debts and possibly completely wind down the company by early 2016.
It was announced last Friday the state investment arm had entered into a binding agreement with the International Petroleum Investment Company (IPIC) and its subsidiary Aabar Investments.
The restructuring plan partly drawn up by 1MDB CEO Arul Kanda Kandasamy had since received the government's go-ahead.
Husni, however, has denied that 1MDB would be gradually wound down as reported.
As part of the agreement, IPIC will make an initial payment of US$1 billion to 1MDB to help it pay off a US$975 million loan from a syndicate of international bank lenders. Assets IPIC will receive in lieu of this payment have not be specified.
"As part of this agreement, IPIC will make a payment of US$1 billion, on or before June 4, 2015. This US$1 billion payment will be used to repay a US$975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders," Ahmad Husni said in a statement.
He said the agreement will also include further measures to "comprehensively address the various financial asset and liability transactions between the parties". No further details were given.
Earlier this month, it was reported that the consortium of banks led by Deutsche Bank wants 1MDB to repay its US$975 million loan earlier, ahead of the Aug 31 due date.
1MDB reportedly took the US$975 million loan in 2014 to buy back Aabar's option to purchase 49% of 1MDB's power assets, in return for IPIC and Aabar guarantees for loans totalling US$3.5 billion.
1MDB is expected to provide IPIC and Aabar with a number of financial assets, including the controversial units that are held in the company's BSI Singapore account.
The government has previously stated that the BSI Singapore account has paper assets worth US$1.103 billion.
The US$1 billion payment from IPIC will go to reducing 1MDB's debt by some RM3.5 billion.
Subsequently, additional transactions – the details of which will be finalised in the coming weeks – are expected to reduce 1MDB's debt by a further RM12 billion to RM12.5 billion, almost a quarter of the total figure.
In total, 1MDB's debts will be reduced by RM16 billion. 1MDB currently has RM42 billion in debt and RM51 billion in assets.
"This agreement marks a significant step towards reducing 1MDB's overall debt levels and is a crucial part of the rationalisation plan I presented to Cabinet earlier, which we expect to be implemented
in full by early next year," said Ahmad Husni.
He presented a rationalisation plan for 1MDB to the Cabinet last Friday, following its announcement in February 2015 on the conclusion of a strategic review.
"As has already been achieved with Edra Energy (Edra Global Energy Bhd, 1MDB's power assets), this will see TRX and Bandar Malaysia established as standalone companies, with full autonomy and accountability for their operational and financial performance," he said, adding that options to monetise Edra Energy are being pursued.
Ahmad Husni also said ministry will remain a key shareholder in TRX and Bandar Malaysia, which will raise equity via third party investors. Proceeds raised will be used for capital expenditure and to reduce 1MDB's debts.