Controversial sovereign fund 1Malaysia Development Berhad (1MDB) today sought to clear the air over "unsubstantiated" claims of shadowy dealings, preferential treatment and exorbitant debt brought against it by critics.
In a lengthy statement, 1MDB said it took the allegations about its bonds and debts issuances, commissions, debt levels and overpayment of assets "very seriously", and intended to present its own side of the story to every claim.
The government-owned subsidiary said issuance of its bonds and debts had been "unfairly compared" to that of Petronas's, as in terms of the interest rate both companies first paid to investment firms.
1MDB noted concerns about the "particularly high" interest rate of 5.75% assigned to its RM5 billion Islamic bond that it issued in 2009, which had a 30-year tenure.
"As a comparison, it has been noted that another government-linked company Petronas paid an interest rate of 3.60% on a bond at the same time.
"This is an unfair comparison that does not take into account a number of important factors.
"The longer the tenure, the higher the risk for the bondholder. As such, bonds that have a longer maturity period typically have a higher interest rate.
"As far as we are aware, the only Petronas-related bond issued in 2009 that carried a coupon rate of 3.6% was for a RM100 million bond with the tenure of only three years."
It said that considering there was a significant difference in maturity periods for both 1MDB and Petronas, it should not be surprising that the 1MDB-issued bonds had a higher interest rate.
"Given the economic climate of the time (2009), the fact that 1MDB successfully managed to raise this amount of capital reflects the support, goodwill and confidence placed in the company.”
1MDB also addressed claims raised by DAP’s Petaling Jaya Utara MP Tony Pua that 1MDB had overpaid RM1.52 billion in commissions when it raised US$1.75 billion (RM5.75 billion) and US$3.0 billion in bonds in 2012 and 2013 respectively.
"Both these bonds were issued at a discount typical of most bond offerings. Any difference between par value (issued value) and the net proceeds of a bond comprises not only fees and other expenses but also its effective yield, which takes into account the discount and the remaining tenure of the bond.
"We would like to make clear that the bulk of the difference between the bonds’ par value and the net proceeds are attributed to the bonds being issued at a discount, to ensure the successful completion of the fundraising in view of internal and external factors of the market, the speed to complete the offering and the scale of the underwriting."
On Monday, Pua called on Putrajaya to reveal the parties who had benefitted from the RM630 million and RM906 million which were deducted from both bonds for "certain commissions, fees and expenses".
His call came on the heels of a report by The Edge Weekly which exposed the extent of the sovereign wealth fund's debts, saying that its fund-raising cost exceeded the industry norm and compounded the government's 100%-owned entity's ballooning debt profile.
The report said that 1MDB's RM36 billion debt as at financial year ended March 31, 2013 (FY13) might rise to some RM40 billion in FY14.
The rising debt, essentially, raises concerns over the financial sustainability of 1MDB, which invests in real estate development, and power generation operations.
1MDB, the report said, had agreed to pay 5.75% annual interest on a RM5 billion 30-year Islamic bond which was guaranteed by the federal government.
It also paid above industry standards on two subsequent bond issues it made in 2012 and 2013, with the fees and other payments worth more than RM1 billion paid to the investment bank, Goldman Sachs International.
But, Equisar International Incorporated, a firm owned by the Sarawak government, only paid Goldman Sachs 1.25% to manage its US$800 million loan.
Addressing concerns over its debt levels, 1MDB said like any major company, it had also raised capital on the international debt markets to finance specific projects.
"All of our debt is backed by solid assets, and the total value of our assets (RM44.67 billion as at the financial year-end of March 2013), comfortably exceeds the value of our total debts (RM37 billion for the same period).
"It is also important to note that we have never missed a payment schedule, nor do we intend to do so. Our consistent ability to raise funds on the international markets, and from quality investors, reflects the confidence they place in us."
The government-owned entity also rubbished claims that it had overpaid for energy and real estate assets, pointing out that it looked at a long-term view and broader synergies, as well as the social and economic impact on the country, when it evaluates assets and forecast economic returns.
"As such, we believe that the value we paid for these assets, which may have involved a premium in certain instances, as is common when acquiring another business , is commensurate with their existing and future potential." – October 30, 2014.