The fund said in a statement today that due to its new business direction, it had asked and has been given an extension to file its returns by March 31, 2014.
Opposition politicians have criticised the fund for the lack of information about its projects and its failure to file its annual returns on time, with both DAP MP Tony Pua and PAS research chief Dr Dzulkefly Ahmad asking for full disclosure.
"To give a more accurate representation and valuation of 1MDB’sassets, it is vital to have a more detailed knowledge of the operations and factor in other considerations such as precedent transactions for acquisition of controlling stake, discounted cash
flow, management expertise and potential growth of the business.
"Any valuation without detailed information is wrongly premised and inaccurate," 1MDB said in a statement released in capital Kuala Lumpur today.
A government source told The Malaysian Insider that bankers providing financing to 1MDB have cited bank and custodian statements to confirm and verify 1MDB's funds under management, US$2.318 billion (RM7.6 billion), are intact, with cash dividends of US$200 million (RM658.9 million) generated to date.
"Or else bankers wouldn't provide project financing for 1MDB," a government source told The Malaysian Insider
Another source familiar with 1MDB's loan portfolio said for long-term investment focus, it would be good for 1MDB to borrow as long as project cash-flow and projected returns are higher than borrowing cost as this maximises the return for Putrajaya.
"It ensures the most efficient capital structure. It is also long-term in nature and thus focuses on long-term planning and not short-term gains," he said.
He also said that 1MDB's borrowings of RM2.5 billion and US$300 million (RM988 million) cited in last week's The Edge had been repaid in full.
"The Government of Malaysia, as of today, has given 1MDB only RM1 million in cash, and it has performed very well with this capital, growing into a company with net-asset in excess of RM5 billion, after all debts," the source added.
He noted that the Tun Razak Exchange (TRX) and Sungai Besi land were bought from the government on an "arms-length" basis, similar to Putrajaya's main asset manager Khazanah Nasional Bhd's Iskandar/Medini to stimulate the growth corridors.
"With RM1 million in equity and cash, 1MDB has built up its capital structure with, now, in excess of RM1 billion in equity from its profits generated over the years in a very challenging environment.
"This is measured against Khazanah and other institutions that started with billion and billions of cash," he said.
Sources also told The Malaysian Insider that a planned initial public offering (IPO) this year is expected to yield billions of profit for 1MDB due to "synergies and cost savings generated from the various businesses."
"The 1MDB energy IPO, expected to be RM25-29 billion, would generate FDI in excess of RM6-10 billion," a source told The Malaysian Insider.
"1MDB has a very efficient capital structure as it only came up with minimal equity of a few hundred million, and managed to acquire billions in power assets with the trust given AA-rated Government of Abu Dhabi's International Petroleum Investment Company (IPIC) guaranteed funds," the source said.
He added 1MDB has the confidence of the local and international banking community which has provided acquisition financing as the fund is backed by strong power-plant cash-flow and growth plans, not just in Malaysia but internationally.
He also said this allowed 1MDB Energy's portfolio to generate good double-digit Internal Rate of Return (IRR) amid what he called wrong reporting of 4% IRR.
"This means that most of 1MDB's debt, almost 90%, is backed by the powerplant cash-flow and growth. The balance is all backed by its cash and TRX land and Bandar Malaysia land," the source added.
In its statement, 1MDB also said the assets with a high value proposition "can be expected to stimulate markets and bring significant FDI and cash profits to the shareholder – the Government of Malaysia – as well as enhance competitiveness towards better pricing."
It has completed its acquisition of Jimah Energy, a 1,400 MW coal-fired power plant in Negeri Sembilan, which the fund said was backed by strong cash flow and a 25-year Power Purchasing Agreement (PPA) expiring in 2033.
"This purchase diversifies the group’s energy portfolio and opens up further development opportunities." it said.
The fund's biggest subsidiary, Powertek, operates in Malaysia and in five other emerging markets, specifically Egypt, Bangladesh, UAE, Sri Lanka and Pakistan, it said.
It also noted that another subsidiary, Kuala Langat Power Plant won a 10-year extension to its PPA until 2026.
"1MDB is also well placed to grow significantly in its overseas market. Its management has deep industry knowledge, both at country and group level, and are leading expansion for international operations, supported by a growing demand for electricity and shortage of supplies in some of the countries.
"1MDB is the largest IPP in both Egypt and Bangladesh. In Bangladesh, 1MDB controls 20% of the market share, and is looking forward to growing further," it said in the statement.
The fund said since 2012, its new business direction has helped it grown exponentially, requiring consolidation of new subsidiaries into the group.
"As such, 1MDB has been granted an extension of time up to the 31st of March 2014 to file its annual returns to the Companies Commission of Malaysia.
"1MDB expects to file and submit its audited accounts in accordance to the extension granted by SSM, as it has in the past years," it added.
It also confirmed that it had appointed Deloitte, a Big 4 accounting firm, to complete the audit for the year ended 31st March, 2013, saying this was done after "it was mutually agreed with KPMG that the firm would cease to be 1MDB’s auditors."
"This is nothing special or new as it is in line with best market practice where companies decide on its current or future auditors after considering all aspects, including but not limited to conflict of interests and other consideration," it said, adding Deloitte would apply equally stringent auditing standards in line with international
practice.
The fund also sought to allay fears over its Cayman-based fund, saying it was regulated by the monetary authorities in Cayman, Switzerland and Hong Kong.
"1MDB has invested the proceeds with regulated and licensed international fund managers. These fund managers adopt an absolute return strategy of which the primary investment objective is to achieve long-term capital appreciation and/or steady income through investments in listed and/or unlisted companies," it said, adding the investment objective was specifically tailored and aligned to 1MDB's
risk/return objective.
"A total of US$200 million (RM658.9 million) has been remitted from the fund to the 1MDB group in Malaysia to service repayment. Out of this, US$134 million (RM430 million) is from the 5.76% cash dividend generated within the 1st year of the investment period.
"The funds are Cayman Islands based international fund structures widely used by global international financial institutions. Cayman Islands are one of the largest banking centres in the world where 80% of the world's largest banks have branches/subsidiaries," it added. - TMI
