By Ahmad Naqib Idris Adzman Shah. Published by The Edge Markets on 6 January 2015.
1Malaysia Development Bhd’s (1MDB) failure to settle a RM2 billion loan to local lenders has been a factor behind the extended drop in the ringgit against the dollar, an economist said.
The Edge Financial Daily, quoting sources, reported today that the sovereign fund had missed its Dec 31, 2014, deadline for settlement of the loan, and had received an extension up to Jan 30, 2015, to settle the outstanding payment.
The RM2 billion amount was part of a RM5.5 billion debt taken through its subsidiary Powertek Investment Holdings Sdn Bhd in May 2014 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.
An economist, who is attached to a local bank-backed research house but declined to be quoted, said that while factors such as the drop in oil prices and worries of a twin deficit had influenced the overall weakness of the ringgit, the currency’s decline past the RM3.50 level could have been due to 1MDB.
“1MDB’s failure to settle the RM2 billion loan has added to concerns about the overall financial stature of the sovereign fund, which has a knock-on effect on the ringgit, as we are not sure how much of its debt is backed by the government,” he told theedgemarkets.com. He added that the 1MDB’s situation had further stoked worries regarding the Malaysian government’s financials.
However, 1MDB aside, he said that the performance of the ringgit would largely depend on oil prices. “Principally, the main concern is on oil prices, which has resulted in some selling pressure for the ringgit, due to Malaysia’s position as a net oil exporter,” he said.
According to Bloomberg data, the ringgit has weakened to RM3.5553 against the US dollar, its lowest since 2009. Meanwhile, Brent crude oil hovered around US$53.50 per barrel.
Sources said 1MDB has now been given until January 30 to settle the debt that was originally due on November 30, 2014. Malayan Banking Bhd (Maybank) and RHB Bank Bhd are the lead lenders. The problem has been brought to the attention of Bank Negara Malaysia (BNM), and sources said at a recent meeting, top executives from 1MDB led by chairman Tan Sri Lodin Wok Kamaruddin, director Tan Sri Ismee Ismail and outgoing CEO Mohd Hazem Abdul Rahman were given a dressing-down by the central bank. According to sources, the 1MDB executives were told in very strong terms that they will face action if the matter is not settled.
Maybank, RHB and BNM declined to comment. 1MDB did not respond to queries on the matter...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%).
Sources said the inability of 1MDB to meet its payments shows how it is struggling with cash flow that cannot support its debt servicing. They said it is likely that 1MDB has not received the US$1.23 billion (RM4.3 billion) that was supposed to be redeemed from the fund in Cayman Islands on November 30 last year.
The money was the remaining amount of the US$2.33 billion invested in a fund there. In 1MDB’s audited accounts for the financial year 2014 ended March 31 (FY14) released in early November, it was stated that the money would be redeemed by November 30, 2014.
1MDB had borrowings of RM42 billion and suffered a negative cash flow of RM2.25 billion in FY14 with its debt servicing at around RM2.5 billion. Apart from not getting all the money back from Caymans, 1MDB’s plan to list its energy assets to raise money to pay its debts has been delayed and now looks likely to take place only in the second quarter of this year.
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KUALA LUMPUR (Jan 6): The FBM KLCI skidded 1.53% at the midday break on Tuesday, in line with the fall at most global markets. At 12.30pm, the index lost 26.32 points to 1,710.30. It had earlier fallen to its intra-morning low of 1,708.78.
Market breadth was negative as losers thumped gainers by 663 to 88, with 175 counters traded unchanged. Volume was 951.28 million shares valued at RM811.36 million. Meanwhile, the ringgit declined 0.61% versus the US dollar and was quoted at 3.5553.
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