The 1 MDB Story.
Having read the expose by The Edge Malaysia (Feb 17, 2014) of 1-MDB this morning, to say that the case of 1-MDB is troubling is an understatement. If this is PM Najib’s flagship of showcasing his success, this surely is extremely distressing. This report focuses on the powers sector and property market.
The Government-funded 1-MDB was set up to drive investments in the new strategic sectors with high productive outcome and impact on the economy.
But after five years, all that 1-MDB s capable of showing is a mountain of debt ie a multi-billion ringgit debt portfolio. It has a few signs to being able to succeed without government giving more sweetheart deals.
After what could be dubbed a shopping spree by 1-MDB, the main challenge for 1-MDB is that ‘its current portfolio of power assets seems to generate minimal returns relative to costs’.
In March 2012, I-MDB acquired Tanjung Energy Holdings Sdn Bhd for RM8.5 billion from Ananda Krishnan. In August 2012, it bought 75% stake in Genteng Sanyen Power SB (now Kuala Langat Power Plant SB), at RM2.35 billion. However “total cash flow generated from its plants is at RM1billion per annum. It is only adequate to service interest payment arising from bonds but not the bond in full”.
With the Energy Commission set to announce the winner of the bids for the new 2,000 MW coal-fired power plant (Project 3B) and going by market talk, 1-MDB is yet again expected to win over other competitors including YTL Power International Bhd despite a lower competing bid (25.23 sen per kWH as compared to 25.65 sen per kWh of 1-MDB.
By comparing the cash flow streams of the power assets with the RM10.5 billion I-MDB paid, the implied IRR for assets acquired from Tanjung comes up to 5.2%, while the implied IRR for Kuala Langat fares much worse at just 0.5%. In all, its entire portfolio generates a weighted average IRR of a dismal 4%! It has clearly overpaid the acquisition of Tanjung and Kuala Langat.
With the headwind could be anything but stronger, it doesn’t take a pundit to tell the nation that the purchase of the cheap 70 acres of prime land in Jalan Tun Razak for its flagship Tun Razak Exchange (TRX) and 495 acres of the current military airport in Sungai Besi to build the ‘Bandar Malaysia’ is meant to help 1-MDB. It is obvious that to the collateral damage to the rest of the property sector of Kuala Lumpur could be heavy, quipped The Edge.
Thus all effort must be put in place to mitigate an imminent corporate disaster of ‘Najib-Style Corporate Malaysia’. Najib is acutely confused over which way he is going to take Corporate Malaysia as he is not only competing but in fact crushing them.
Is this Najibnomics? (a study now undertaken by Harvard Business School).
A set of economic idea that is dependent on the realisation of speculative wealth through their monetisation in the stock market. Its means include under-pricing of assets through privatisation of government land in high value areas (awarded to cronies) such as in Kuala Lumpur and then flogging them off onto the property and retail investors at inflated valuation.
Najibnomics also applies the same principle to privatised infrastructural and utility projects.
Is this all that PM Najib could muster after being groomed for 30 years before helming this nation?
Time for real real game changer, Umno! Please!
Executive Director, PAS Research Centre.