An opposition MP today said it is “disgraceful” for debt-ridden 1Malaysia Development Bhd (1MDB) to resort to borrowing from the country’s second-richest man to settle its loans.

This is despite the fact that the company had claimed that it had already fully redeemed its investment in Cayman Islands of RM3.9 billion, at the current favourable exchange rate, said Petaling Jaya Utara MP Tony Pua.

“The news is absolutely disgraceful for 1MDB and a terrible embarrassment for the Malaysian government that its sovereign investment fund had to stoop so low as to depend on the goodwill of a local billionaire to temporarily settle its loans,” he said.

Reuters yesterday reported that billionaire Ananda Krishnan will lend 1MDB RM2 billion to settle a loan by local banks Malayan Banking Bhd (Maybank) and RHB Bank Bhd.

1MDB has already twice missed payments on the RM2 billion bridge loan it took from the two banks.

The company has been dogged by controversy over its RM41 billion debts, hundreds of millions of dollars of revenue earned by Goldman Sachs for handling its bond issues and a perceived lack of transparency.

Meanwhile, Pua said that borrowing from Ananda was proof that 1MDB is now held hostage to the “white knight” and that there would be concerns over the terms of the loan which would be conceded in Ananda’s favour.

“This is especially since 1MDB has a terrible track record of securing special loans,” he noted.

Pua cited the time when the company raised USD3.5 billion of 10-year bonds to fund the acquisitions of independent power producers (IPPs), Tanjong Energy and Genting Sanyen.

“It could only do so with the corporate guarantee provided by the International Petroleum Investment Company (IPIC), a wholly-owned investment vehicle of the Abu Dhabi government.

'Expensive price tag'

And despite having to price the bonds at an expensive 5.99 percent, the “guarantee” from IPIC came with an expensive price tag, Pua pointed out.

Pua said 1MDB had to dock 40 percent of the loan with IPIC as security deposit, which amounted to RM4.47 billion and recorded in

the March 2014 financial statements.  

“Effectively, this means that 1MDB is paying 5.99 percent interest on a US$3.5 billion loan despite having access to only 60 percent of the funds or US$2.1 billion,” he said.

Pua ( right ) added that 1MDB had to offer the option for IPIC’s subsidiary, Aabar Investments PJS, to acquire up to 49 percent equity interest in 1MDB’s acquired energy subsidiaries in order to secure the guarantee.

“The above are on top of the exorbitant certain commissions, fees and expenses paid to investment bank Goldman Sachs - which was previously criticised in Parliament - amounting to approximately 10 percent or US$350 million.

“Taking all of the above cost of funds - USD250 million and USD350 million - and the locked deposit of USD1.4 billion, 1MDB’s subsidiaries have taken a loan of USD3.5 billion with an unheard of 13.98 percent effective interest for a so-called ‘sovereign wealth fund’.

The DAP parliamentarian, therefore, stressed that it was crucial for 1MDB to disclose the full terms agreed with Ananda for the temporary loan.  

“The new CEO, Arul Kanda Kandasamy, must keep to his word that he welcomes public scrutiny as a good thing that will only serve to strengthen the company and its governance.

“If 1MDB is further short-changed, then perhaps whatever value that is left of the stalled initial public offering (IPO) of 1MDB’s energy subsidiaries will be insufficient to cover the massive RM42 billion debt which 1MDB has accumulated to date,” Pua noted.

Going deeper in debt?

Meanwhile Pandan MP Rafizi Ramli also questioned why the loan was necessary when 1MDB had claimed to have repatriated all of its Cayman Islands funds.

"It raises the question that if it is true that the Cayman Islands has truly been brought back to Malaysia, why doesn't 1MDB have funds to repay the debts (to Maybank)?" he asked in a separate statement.

Rafizi warned that 1MDB's financial problems will worsen this year, owing to additional bridging loan it has reportedly taken worth USD1 billion that has to be repaid by this Sept.