1MDB to Cut Debt by $9.4 Billion After Sales, Malaysian PM Says

  • Company had debt totaling $9.8 billion as of March 2014
  • 1MDB's major challenges are now behind it, Najib says

1Malaysia Development Bhd. will trim its debt by 40.4 billion ringgit ($9.4 billion) once it completes agreed asset sales, Prime Minister Najib Razak said Thursday after the state-owned fund announced its latest asset-disposal pact. 

1MDB said earlier Thursday it would sell a 60 percent stake in a Kuala Lumpur project known as Bandar Malaysia Sdn. to a joint venture between Iskandar Waterfront Holdings Sdn. and China Railway Construction Corp. for 7.41 billion ringgit. The disposal is part of a broader plan the company announced in February to unwind its assets after drawing criticism from lawmakers for amassing about 42 billion ringgit of debt in its less than five years of existence. 

“1MDB’s major challenges are now behind it,” said Najib, who heads the fund’s advisory board, in an e-mailed statement. “All that remains is for the deals it has entered into to be completed and the final steps of 1MDB’s rationalization program to complete.”

Under Scrutiny

The Kuala Lumpur-based company, which had total debt of $9.8 billion as of March 2014, came under scrutiny after it almost defaulted on a loan earlier this year and threatened the sovereign’s credit rating. It faced cash-flow problems and a planned initial public offering of its energy unit was delayed amid unfavorable market conditions, President Arul Kanda said Oct. 31. The listing was canceled, and the company agreed to sell the assets to China General Nuclear Power Corp. for 9.83 billion ringgit in November.

Bandar Malaysia Sdn., a mixed-property project encompassing a 196.7-hectare site, is valued at 12.35 billion ringgit, according to the investment company. The development will also host terminals for the Singapore-Kuala Lumpur high-speed rail and offer future access to major highway networks. The project will be developed over 15 to 25 years at an estimated sale value of 150 billion ringgit.

Besides the assets sales, 1MDB has also entered into an agreement with International Petroleum Investment Co. for the Abu Dhabi company to assume its obligation for a $3.5 billion bond, including principal and interest, according to Dec. 17 statement.

1MDB has also been the subject of investigations related to allegations of financial irregularities, although an initial Auditor General’s report didn’t reveal any suspicious activity. Najib has resisted calls from former Prime Minister Mahathir Mohamad to step down over the fund’s performance.

“The sales will resolve 1MDB’s financial issue,” said James Lau, a Kuala Lumpur-based investment director at Pheim Asset Management Asia Bhd., which oversees $300 million. “But the bigger issue has always been accountability and transparency.”

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