By Chan Quan Min
Latest audited accounts by state-owned strategic investment fund 1Malaysia Development Bhd (1MDB) reveals a company that is sitting on an enormous RM23.6 billion cash-pile against even larger borrowings of RM36.3 billion.
After a one-year delay, 1MDB’s audited accounts for the financial year ended March 2013 were made available this week. In the time since, the controversial investment fund swapped auditors KPMG for Deloitte.
Immediately obvious from a cursory glance at 1MDB’s balance sheet is that the scale of its operations have grown tremendously. Total reported assets at RM44.7 billion as of March 2013 is almost five-fold larger than the same time last year.
1MDB is an extremely cash-rich company, listing an incredible RM23.6 billion in liquid assets. Of this sum, at least RM12.1 billion or half the amount is parked overseas, far more than any other Malaysian government-linked investment fund.
The overseas investments of RM12.1 billion is made up of just over RM7 billion in the Cayman Islands and a sum of RM4.9 billion placed with unnamed fund managers overseas.
The elephant in the room of 1MDB’s overseas investments is the sum of RM7.2 billion in a Cayman Islands Segregated Portfolio Company (SPC), which allegedly makes no financial sense because the monetary “cost of borrowing is higher than the return on investment,” according to a statement by DAP MP Tony Pua.
The other tranche of investment overseas is a RM4.9 billion sum in the accounting category of ‘other investments’ consisting of, according to 1MDB directors, “various investment portfolios through an overseas licensed financial institution.”
This sum of RM4.9 billion was carved out of US$3 billion (RM9.3 billion at March 2013 exchange rates) in debt securities sold by a 1MDB subsidiary for the explicit purpose of “seed capital” in a joint venture with Aabar Investments of Abu Dhabi to develop a RM27-billion new financial district for Kuala Lumpur, the Tun Razak Exchange.
The RM9.3 billion in debt securities were rated favourably by Standard and Poor’s based on expected timely financial support from the government of Malaysia, the ratings agency said in a statement.
The note-issuing 1MDB subsidiary in question is 1MDB Global Investments Limited, a special-purpose company established in the British Virgin Islands.
1MDB’s 2013 financial year audited accounts reasoned that the carve-out of RM4.9 billion from funds allocated for the Tun Razak Exchange development was made in view of “the detailed blueprints of the project are (still) being finalised as of the reporting date.”
Another item in the liquid assets of the company is a sum of RM4.2 billion, for the most part, consisting of collateral deposits with its Tun Razak Exchange development partner Aabar.
Cash and bank balances is a massive RM6.7 billion, most of it deposits and placements with licensed banks. The weighted average deposit rates reported for this tranche of cash is a measly 0.91% per annum.
Borrowings more than quadrupled
1MDB’s reported borrowings totalled a huge RM36.3 billion in the 2013 financial year ended March, more than quadrupling the previous year’s figure.
Term loans and bonds, both non-current and current stood at RM21.9 billion and RM9.9 billion respectively, due to the aggressive pace of loan activity and bond issuances in space of just one year between April 2012 and March 2013.
Of note, 1MDB’s borrowings also list RM4.4 billion of federal government “unconditionally and irrevocably” guaranteed loans.
The major bond issues made by 1MDB were managed by the US investment banking firm Goldman Sachs as investigated by Kinibiz in an article published this time last year.
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