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04/06/2015

DID 1MDB REALLY BUY IPP BIZ FOR A STRATOSPHERIC RM18 BILLION?

by bernie madhoff, donplaypuks® intrepid correspondent for stratospheric ipp affairs

Yesterday's statement by new CEO Arul Kanda, that 1MDB paid RM18 billion to acquire the 3 IPP's - from Ananda Krishnan, Genting and the NS Royal family - is as astounding a disclosure as any we will hear from this much discredited company which is unfortunately owned 100% by the Raykat. Come hell or high water, we the PEOPLE, are stuck with it.

Before this, based on the loans 1MDB took out and other information, the market believed that 1MDB had paid out RM12 billion for the 3 IPPs. Of this, the auditors forced the Board of Directors to write-off some RM3 billion in 1MDB's P&L account, being the difference between the book value of assets acquired and the price paid for them (RM12 billion). In accounting terms, this is described as "goodwill write-off".

We are now told that 1MDB actually agreed to a price tag of RM18 billion for the 3 IPPs, of which RM12 billion was for the (already over-valued) assets and another RM6 billion in "inherited debt"!! 

Note that Kanda did not say RM6 billion in bank loans, but described it, in the usual woolly way 1MDB words its  clarifications, as "inherited debt"? What does he mean by this? Are these bank loans or not? Who was this "debt" owed to? Are off-the-books or the private debts of individuals who have been laundering money to evade tax in Malaysia, being passed off as corporate debts? Why the secrecy over who these creditors were? Whose interest is 1MDB protecting?

This looks exactly like the 2000 MAS share bailout by Mahathir and Daim. The bailout price was RM8 a share when the quoted price on the KLSE was RM3.68. The bailout price of RM8 was arrived at because Tajuddin Ramli had outstanding bank loans and RM3.68 a share would not have been sufficient to cover the bank loan repayment. Tajuddin Ramli may have been declared bankrupt and a local bank may have collapsed. So, the RM8 a share was cooked up to bailout BUMNO/SCUMNO which was the real owner of the controlling MAS shares. TR himself admitted that he was forced into "national service" by the dynamic duo of Mahathir and Daim.

The first question is, of course, how could aged, and old generation assets and expiring IPPs which are completely dependent upon the Government and Tenaga Berhad for extension and power purchasing agreements, command a price of RM18 billion when their book value was only RM9 billion? Who valued it and on what basis?

Or is Arul Kanda wrong? 

It is important for Arul Kanda to clarify whether the actual price was RM18 billion (including RM6 billion "inherited debt') and they paid cash RM12 billion and merely took over RM6 billion of "inherited debt" book creditors, or actually paid off in cash another RM6 billion of "inherited debt". 

The distinction is important. 

If 1MDB just took over the "inherited debt" from the IPPs, then there is no cash outflow from its bank accounts. So Arul Kanda and 1MDB will have to account for what happened to RM6 billion more from the RM46 billion it borrowed. 

Remember that the total borrowings of 1MDB is RM42 billion in bonds etc. + RM4 billion in derivative debts. 1MDB cannot deny that it borrowed RM46 billion because that is also there in black and white in its balance sheet!! 1MDB and Arul Kanda, PM Najib and Deputy Finance Minister Husni have all deliberately refrained from talking about the additional RM4 billion derivative debt, and fudged over it. But as the Indian saying goes, you cannot hide a full pumpkin in half a plate of rice!

The pricing for the Sg. Besi land also looks wrong. The government announced that 1MDB would take over this land in exchange for RM2.1 billion of contractually committed expenses, to be incurred by 1MDB to build 6 army camps. The MoF also generously gifted 1MDB a RM1 billion grant to finance this army re-settlement scheme. So, depending on the accounting policy, the cost of the Sg. Besi land should be reflected as either RM2.1 billion or RM1.1 billion (2.1-1.0). As it stands, the price of this land of 495 acres or 21.56 million sq.ft. @ RM400 million, works out at a ridiculously low RM18.55 per sq.ft. Something is definitely wrong with 1MDB's accounting methods.

It also appears that 1MDB used borrowed money to fund bond and other interest debt, as well as repay loan capital. I have said this countless times - this is a mad hatter's business model and financing scheme. It could only have been thought up by a clueless PM & Finance Minister, and Chairman of 1MDB's Advisory Board with a "degree" in Industrial Economics, who did not plan at all how annual interest of about RM2.3 billion (appx. 5% on RM46 billion loans) would be serviced. 

Rigorous strategising for debt servicing and playing around with cash flow simulations and models is the most basic aspect of financial planning. Yet it would appear that 1MDB sallied forth on a wing and a prayer with a paid up capital of RM1 million and borrowed 46,000 times its cash capital. No one, including PM Najib, thought it necessary to plan way ahead how RM46 billion of loans would be repaid, and annual debt of RM2.3 billion serviced.

And of course, Husni is talking absolute rubbish, that matters should not be addressed merely in terms of RM46 billion in debts, but that the corresponding assets should also be recognised. 

Well, Husni, please don't try and teach your grandmothers how to suck eggs. If you neglected to plan how RM46 billion borrowings and annual RM2.3 billion in debt interest would be serviced using those "assets" to keep the banks and lenders at bay, then you should resign immediately and retire to your village.

And oh, by the way, if RM15.4 billion has been "invested" with entities all connected with Jho Low, then who else should we ask for explanations as to why 1MDB is so fully "invested" that it has no cash to pay its debts? Paris Hilton? Leonardo Dicapro? The Wolves of Wall St.? The King of Arabia?


 Donplaypuks® with stratospheric pricing, man!

9 comments:

Anonymous said...

Don,
It is indeed puzzling about the 6B inherited debt.With the agreements for the IPPs about to expire, you would expect to see any of the original debt raised by the IPPs to be paid off unless of course prior to the purchase by 1MDB, these IPPs raised new debt..!! and passed this on to 1MDB..

I wonder if IMDB carried out any economic evaluation to arrive at the purchase price.. I doubt it .. if it did would be wonderful to look at the assumptions used and the discount factor..

Anonymous said...

Reason to change auditors every now and then, and the last being Deloitte !
Where did Arul, Husni, Najib, Jlow, Shahrol, get their degrees, that they think the Malaysian public will be hoodwinked again and again?

Anonymous said...

Why did Arul leave out the RM4 billion derivative debts from his glossy chart?
And another blogger asked, why are the investments into the "desalination plants" not shown? Conveniently forgot because otherwise the sum total would come up to more than RM42 million, same reason why the RM4 billion derivative debts were omitted?

Getting deeper and deeper into quicksand?

Donplaypuks® said...

Hi Guys and Gals

Yes, the RM6b "inherited debt' is puzzling me sleepless. I will be going to SSM next week to see if 1MDB files full accounts or the abridged version and get copies to see if the puzzle can be solved.

As for the RM4b derivative debt, I believe this is the RM4b loaned by the government servants' pension fund KWAP (Kumpulan Wang Amanah Pencen) and which debt has been taken over by the MoF. It was apparently "invested" in the Mongolian coal mine and other mines in Indonesia, though details are scant.

The extinguihing of the RM4b by MoF means anothet bailout of 1MDB, and the entry may only be detailed in the financial statements for the y/e 31 March 2015, which will be made public, I suppose in November!

Dpp

Anonymous said...

.
.

.
This thingy a business model?

No such a thing. What the administrator of the Co [1MdB]
did was placed a few 'pork barrel' in Dubai or somewhere
in the world [Cayman Is., Singapore ] and start filling
them up with fats [borrowings from banks] for their
spending. According to Sarawak Report - Yachts, palatial
homes and diamonds were bought...


Now in their scheme of things, they were relying on using
the CCA [which took into account of the revised value of
their asset in the accounting period ending on a fixed date
to mask the borrowings which they have (mis)used to line up
the pork barrel. The administrator was lucky that the revised
value of the asset [bought at 64 ringgit per sq foot ] could
be flogged at 3000 ringgit per square foot.

There was an abuse of power [a regular feature in BN gomen operation],
when a 1MdB could buy prime land at super great discount. Now the question
arises if PM could give land at super great discount to 1MdB , why could
it not give another 10 Generating licences from 1 MdB?

Of course it can. But someone wants to see the yachts 'cepat' . So madam
cannot wait. Surely with the aging IPP's are in sync with an expiring
licences! It takes easily 4-5 years from planning to completion of an IPP.
YTL was given licences and land [from TNB land bank] to build the Paka Power
Station. So the whole process of buying IPPs are merely a ruse to bleed
the borrowings to line up the Pork Barrels.

Had 1Mdb been seriously wanting to be a player in the Energy biz it could
obtain licences and do what YTL did. Line up the banks for financing then
get a turbine supplier -GE, Enecma or Some Russian Shit to be the technology
[Engineering/Procurement] Partner.

Fortunately for us , Madey is well versed with the Energy biz [having given
YTL] the first IPP and can smell the ruse a mile away.

So bullshit after bullshit will be churned out to say that 1 MdB is a business
when it is nothing more than a ruse to line up a few pork barrels wstrategically
placed all over the world at the disposal of Madam and Sir!



Khong khek khuat

,

,

flyer168 said...

"DID 1MDB REALLY BUY IPP BIZ FOR A STRATOSPHERIC RM18 BILLION?"

It was apparently "invested" in the Mongolian coal mine and other mines in Indonesia, though details are scant...

"From this evidence one can make a simple calculation as to the value of the 50% share that the Finance Minister Najib Razak implies is owned by SRC in its ‘joint venture’.

With 14% of the company being worth $13.3 – $14.9 million, we can say that at best value each percentage of this Gobi Energy company is worth a million dollars.

This would signify that SRC’s apparent 50% share of the company is worth USD$50 million.

At present exchange rates that is around RM180 million – or RM0.2 billion.

Why so many tricky answers from the Finance Minister cum Prime Minister about SRC?

This is just under 5% of the borrowed money that has been supposedly accounted for in the Finance Minister’s statement.

So, we ask, what happened to the remaining RM3.6 billion borrowed by SRC and why did the PM neglect to account for the remaining 95% of SRC’s investments?"...

http://www.sarawakreport.org/2015/04/mongolian-mystery-over-more-missing-millions-from-1mdb/?utm_source=Sarawak+Report&utm_medium=email&utm_campaign=2de96ebca3-RSS_EMAIL_CAMPAIGN&utm_term=0_97635b3a5d-2de96ebca3-208017985

"...They do not by themselves explain why 1MDB is in the financial distress that it is in today – being on the verge of collapsing under the heavy debt burden, meaning its income cannot meet its expenses.

It had a net cash flow deficit of RM2.6 billion in financial year 2014 (FY14), and continues to have to borrow to service old debts.

The reasons why 1MDB is in financial distress are:
i) It overpaid for the power assets by RM3.29 billion which is the amount treated as goodwill by its auditors a year after purchase
ii) It overpaid by around RM500 million for the Penang land going by past transactions before its purchase in May, 2013
iii) It overpaid Goldman Sachs in fees for the three US dollar bond issues totalling US$6.5 billion, and it overpaid the interest rate for the bonds and other loans resulting in RM4.5 billion in financing cost or 10% of its debts
iv) It entered into questionable illiquid investments (Brazen Sky Ltd and 1MDB GIL [1MDB Global Investment Ltd]) totalling RM11.2 billion whose real value are in doubt
v) It entered into a lop-sided agreement that required it to hand over RM4.2 billion to the Abu Dhabi-based Aabar Investments for co-guaranteeing a bond
Why all the above happened must be investigated by Bank Negara Malaysia, the police and the Malaysian Anti-Corruption Commission. Was it incompetence or fraud, or both?

Cont'd Part 2

flyer168 said...

"DID 1MDB REALLY BUY IPP BIZ FOR A STRATOSPHERIC RM18 BILLION?"

Part 2...

Arul’s breakdown also showed how the sovereign wealth fund benefited from the injection of valuable land at a cheap price by the government for the development of Bandar Malaysia and the Tun Razak Exchange in 2012.

The parcels of land were sold to 1MDB for RM600 million.

In FY13, the land was revalued at RM2.735 billion – giving 1MDB a handsome paper profit of RM2.135 billion. In FY 2014, it again revalued the land upward by another RM896 million.

The land today is worth much more, and this is proof that the government had already saved 1MDB from its financial mess with the injection of valuable land at a cheap price.

But the months ahead will show that this is not enough, and a far bigger bailout of 1MDB is needed to prevent it from going under. – June 5, 2015."

http://www.themalaysianinsider.com/malaysia/article/explaining-1mdbs-numbers-line-by-line#sthash.zrb9UzpR.dpuf

5 June 2015 - Explaining 1MDB’s numbers line by line - http://www.themalaysianinsider.com/malaysia/article/explaining-1mdbs-numbers-line-by-line

"... Therefore, the above taken together suggests that the Murabaha Note "redemption" was nothing more than a series of book entries.

In other words, whatever cash was contributed to 1 MDB PetroSaudi is lost for good

The 2013 financial statements were audited by Delloites ,who have certified that the statements have been prepared in accordance with accepted account practice, and provide a true and fair view of 1 MDB's financial position."

http://sahathevan.blogspot.com/2015/03/1-mdb-audit-ag-must-will-find-that-loss.html

http://malaysiansmustknowthetruth.blogspot.com/2015/06/1mdb-even-its-experts-do-not-know-how.html

You be the judge.

Anonymous said...

"Dumb and Dumber"!!!

Anonymous said...

More like getting deeper and deepee into the cesspool.