FAQ About 1MDB
Q1. Is 1MDB a sovereign wealth fund?
No. 1MDB is a strategic development company, wholly owned by the Government. However, unlike sovereign wealth funds, which are funded by and act as investment holding arms of the Government, we raise and invest our own capital.
1MDB’s mission is to drive the sustainable long-term economic development and growth of Malaysia by forging strategic global partnerships and attracting foreign direct investment into the country. 1MDB also participates in strategic sectors that ultimately help drive the country’s socio-economic growth.
Since our inception in 2009, we have built a successful track record in attracting leading players from the international financial market to Malaysia. Their support for our investment activities, as demonstrated consistently in the debt markets, reflects the desire of investors to participate in the Malaysian growth story and is a sign of the growing appreciation of the country in the global economy.
Q2. How is 1MDB funded?
Like any other major company, 1MDB raises its funds via a combination of factors. We have successfully built a number of strategic partnerships with leading international investment companies, which should result in an in-flow of foreign investment into Malaysia.
Furthermore, we raise capital on the local and international debt markets. The fact that we have consistently been able to do so reflects the support, goodwill and confidence that the international financial markets place in us.
1MDB has only ever received RM1 million in equity from the Government, which has been used to good effect in building a solid business, that generates profits and helps drive economic growth in the country.
Q3. Does 1MDB have funds invested abroad?
Yes. It is common practice amongst major companies to invest surplus funds, especially in foreign currency, with regulated and licensed international fund managers/administrators and custodian banks in jurisdictions that adhere to international best practice. These institutions adopt an absolute return strategy with the primary objective of achieving long term capital appreciation and/or steady income via their investments. There is nothing unusual about this.
Q4. Is there any reason to be concerned about 1MDB’s debt levels?
Not at all. Like most other major companies, 1MDB has raised capital on the international debt markets to finance specific projects, the scale of which has required us to do so. All of our debt is backed by solid assets, and the total value of our assets (RM51.4 billion as at the financial year end of March 2014) comfortably exceeds the value of our total borrowings (RM41.9 billion for the same period).
These assets provide us with healthy cash flows and have strong growth potential. At the same time, it is important to note that we have never missed a payment schedule, and our consistent ability to raise funds on the international markets, and from quality investors, reflects the confidence that they place in us.
Q5. Could 1MDB’s debt have any impact on Malaysia’s sovereign rating?
1MDB’s debt has no bearing on the sovereign rating or financial stability of the country. As mentioned above, all of our debt is backed by solid assets and strong cash flows, and the total value of our assets (RM51.4 billion as at the financial year end of March 2014) comfortably exceeds the value of our total debts (RM41.9 billion over the same period).
Of our total debt, the government guarantees RM5.8 billion, on which we have significant interest cover. Furthermore, due to the fact that 1MDB is a limited liability company, the risk borne by and exposure to our shareholder (the Government) is limited. Similar views have been expressed by leading international financial institutions recently as well.
Q6. Did 1MDB overpay for its energy assets?
Like any other company, we only acquire assets when we are convinced that they represent compelling value for our business. Since our inception, we have acquired a number of energy assets, all of which have met this criteria, and have provided us with healthy cash flows as well as the expertise of the experienced management teams that came with them. We believe that the value we paid for these assets is commensurate with their existing and future potential.
We take a long term view and consider broader synergies for the group and our shareholder, as well as the social and economic impact on the country, when evaluating and forming a view on the valuations we attribute to assets. This includes current and future direct and indirect economic returns.
Today, we own sixteen power and desalination plants in six countries with a net power generation capacity of 5570MW, making us Malaysia’s second largest independent power producer.
Q7. Does 1MDB receive preferential treatment on tenders for power projects?
Our scale as Malaysia’s second largest independent power producer, successful track record in the sector, and experienced management team mean that we are a competitive player.
Any award take a number of factors into consideration to ensure secure and cost effective energy supplies to consumers: the technical standards of the bid, the track record of the company, the bidding price, the urgency of the project and energy security and the whole systems cost of the bid to name a few. The projects that we have been awarded, both in Malaysia and abroad, have been on this basis.
Q8. 1MDB has made a number of land acquisitions in recent years. What is the rationale for these?
As a strategic development company, wholly owned by the Government, we do not make simple property plays as an ordinary investor would do. Instead, we take targeted and strategic real estate decisions, with the aim of generating value and spurring economic growth. This covers a broad spectrum; from providing affordable housing for the local population in Penang, to the creation of a new world-class financial district in Kuala Lumpur.
Q9. Some reports suggest that 1MDB has underpaid for land parcels it has acquired, whilst others suggest that it has overpaid for some of its land acquisitions. Which is true?
Any decision we make to invest in real estate is reached following an extensive period of due diligence, which includes the appointment of independent appraisers to determine the value of the land we intend to acquire, whilst also taking into account the value we can add to it. All of our investments are undertaken in line with the best interests of the business, and with a view to stimulating economic growth and prosperity in Malaysia.
In some instances, the land we acquired has been revalued, and this has been done in tandem with changes to the market price in the surrounding areas, and to take into account the investments we have made to prepare the land to be ready for development. For instance; the cost of relocating RMAF bases in the case of Bandar Malaysia and the cost of relocation of residents and businesses in the case of TRX, as well as the preliminary groundwork that precedes earthwork and construction, the costs of the master planning and obtaining the necessary approvals from the relevant authorities.
Q10. What is the latest update on TRX?
We continue to make excellent progress with TRX, both in terms of the earthworks taking place on site which are nearing completion, as well as in attracting leading partners and investors from Malaysia and around the world.
Earlier this year, we announced that we will be entering into an agreement with Lend Lease – one of the world’s leading property and infrastructure groups – to jointly develop the Lifestyle Quarter at TRX which is expected to attract up to RM3.2 billion (US$1 billion) in foreign direct investment to Malaysia. We are also entering into an agreement with Export-Import Bank of China to jointly develop the Signature Tower in TRX, with the bank expected to contribute up to RM900 million (US$300 million) towards its development. More recently, we signed a 20-year concession agreement with Veolia Water Technologies Southeast Asia for wastewater treatment and recycled water supply in TRX, which will be a key component of TRX’s sustainability framework.
Looking ahead, we have kicked off the tender process for the next stage of work that will include road works and tunnels to support the key infrastructure, and are in discussions with a number of parties about various other areas of the development. We hope to make announcements regarding these in due course.
Q11. Does 1MDB contribute anything to the economy?
1MDB’s mission is to drive sustainable economic development in Malaysia by forging strategic global partnerships and promoting foreign direct investment into the country as well as participating in strategic sectors that help drive socio-economic growth. Since our inception in 2009, we have built a successful track record in attracting leading players from the international financial markets to Malaysia, which should lead to an in-flow of capital into the country.
Taking TRX as just one example; leading companies and institutions from Australia, China and the Middle East amongst other regions are investing in the development, which will spur growth and create thousands of jobs in Kuala Lumpur alone. Their support for our investment activities and the desire of investors to participate in the Malaysian growth story is a sign of the growing appreciation of the country in the global economy.
As a company that is wholly-owned by the Government, making a positive socio-economic impact is core to our business objectives, and we are committed to making a lasting contribution to the communities within which we operate. We are focused on delivering progress in three key areas; education, quality of life and youth development, and are proud that over 2.5 million Malaysians have benefited from our various programmes including scholarships, entrepreneurial training, sports and youth skills development, the provision of mobile healthcare and the building of energy and water infrastructure.
FAQ information extracted from 1MDB official website (www.1mdb.com.my)