1MDB confident of meeting debt service obligations

by **Cals** Sun 27 Sep 2015, 22:57

1MDB confident of meeting debt service obligations

Saturday, 26 September 2015

KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) is confident of continuing to meet its debt service obligations with the successful implementation of its ongoing rationalisation plan.
The Finance Ministry-owned fund said while there was a contingent liability on the Government, it expected the rationalisation plan – which includes a debt-for-asset swap, sale of equity in Edra Energy and in Bandar Malaysia – would ensure continuity in meeting the obligations.
“At current exchange rates, the principal amount of this long-term debt is approximately RM18.7bil. Per statistics on the website of Bank Negara, this equates to circa 1.7% of Malaysia’s 2014 GDP of approximately RM1.1 trillion and circa 2.9% of central government second quarter 2015 debt of about RM628bil,” it said.
1MDB pointed out the Government had guaranteed RM5.8bil of 1MDB debt (of which RM5bil is due only in 2039) and provided a letter of support for a US$3bil bond issued by 1MDB, which is due only in 2023.
Elaborating on the rationalisation plan, it said this included a debt-for-asset swap with International Petroleum Investment Co, and sale of its equity stake in Edra Energy and Bandar Malaysia.
1MDB was also disposing of its master-planned land in the Tun Razak Exchange (TRX) development project in Kuala Lumpur and non-core assets.
“The combined proceeds from the rationalisation plan will substantially reduce 1MDB’s debt to a sustainable and manageable level by the fourth quarter of 2015,” it said.
As for TRX, 1MDB said it had sold over RM1bil of land in 2015.
As for Edra Energy and Bandar Malaysia, 1MDB expects to receive the final, binding bids from domestic and international shortlisted bidders by between the middle to end-October.
The sale and purchase agreements for both assets are expected to be executed by December.
“1MDB has consistently met, with no default, its interest service and principal repayment obligations, to both foreign and domestic lenders,” it emphasised.
With reference to a statement by Penang Chief Minister Lim Guan Eng, linking 1MDB to widening spreads on the Government’s credit default swaps (CDS), it pointed out: “It is important to highlight that CDS is a derivative financial instrument, whose values are determined by traders through demand and supply, and do not necessarily reflect economic facts or fundamentals.
“In this regard, a CDS spread is a very different indicator to Malaysia’s A-/A3 credit rating, which reflects the strong ability of the Government to service its debt obligations, with a low probability of default.”