OVERLY leveraged is the oft repeated criticism of detractors of 1Malaysia Development Berhad (1MDB), the nation’s strategic development company. Other accusations include the issue of the company’s lack of transparency, a fair demand on a state-owned investment arm. Once the Terengganu Investment Company, a sovereign wealth fund for the state, it was renamed 1MDB in 2009. When the prime minister announced the name change, he declared that the expansion was meant to benefit all of the population instead of merely the people of Terengganu. And this the country’s investment vehicle will achieve by boosting Malaysia’s economic transformation agenda, the avenue by which the country will become high-income and fully developed by year 2020, at the latest.
Given the calls for greater transparency, 1MDB’s chairman faced the press recently in a 60-minute question-and-answer session to set the record straight and address every issue raised. Thus, was explained the corporation’s much misunderstood, pre-determined, strategic investment moves, especially in the areas of energy and real estate. Bearing in mind that the paid-up capital is a mere US$1 million (RM3.3 million) pumped in by the government, and a very limited debt guarantee, which will under no circumstance expose the country to bankruptcy, 1MDB has acquired substantial assets. To date, a recent revaluation of assets, which stood at RM44.6 billion a year ago, now amounts to RM51.4 billion. Revenue over the same period has increased by 60 per cent, hence, indicating that the investment strategy has paid off.
But, for a company with a small paid-up capital to grow to such proportions in just half a decade by resorting to the debt markets makes good sense. Malaysia has resorted, over and over again, to the debt markets to fund such mega-projects as the Kuala Lumpur International Airport and the Putrajaya administrative centre, with no ill effects. Indeed 1MDB’s debt — by today’s valuation stands at RM49.1 billion — is easily covered by its assets with some left over should it decide to close shop now. It is then the ignoramuses with no business sense who can unashamedly accuse the government and the management of 1MDB of mismanagement. Furthermore, in its purchase of energy assets, it has placed itself in a strategic position within the investment destinations to guarantee revenue over the medium and long term. And when the initial public offering of these assets happens early next year, US$3 billion would have been raised to service the debts. In the Cayman Islands, it has placed United States dollar reserves, also for debt servicing, thus, incurring no foreign exchange costs, which would have happened if the money had instead been repatriated. Development of the Tun Razak Exchange and Bandar Malaysia is scheduled to take off soon. What transparency has done, therefore, is to highlight the prudent but strategic way 1MDB has grown, availing itself of every legitimate instrument available, be it asset acquisitions, partnerships or financial instruments. Shame on those opposition politicians whose disparagements reflect nothing but stupidity.