1MDB responsible borrower and never defaulted, says new chief

The cover story in The Edge Financial Daily today with the report on 1MDB's inability to repay its debts. – The Malaysian Insider pic, January 6, 2015.Just a day after being appointed president and group executive director of 1Malaysia Development Berhad (1MDB), Arul Kanda Kandasamy has had to come out in defence of the strategic investor over its inability to service its debts.

“As far as the banking sector and the credit sector is concerned, we are responsible borrowers and the company has never defaulted," Arul Kanda Kandasamy told Bloomberg today.

“We need to manage the use of our cash in the most efficient way for the company,” he added.

Though not directly addressing a report by The Edge Financial Daily today, Arul seemed to downplay on the concerns highlighted in the report over 1MDB's failure to repay a loan of about RM2 billion last month.

The business daily, quoting sources, said that the sovereign fund had missed its December 31, 2014, deadline for settlement of the loan, and had received an extension up to January 30, 2015, to settle the outstanding payment.

The RM2 billion amount was part of an RM5.5 billion debt taken through its subsidiary Powertek Investment Holdings Sdn Bhd in May 2014 to refinance an RM6.17 billion bridging loan taken in 2012 to part finance the purchase of power assets.

Maybank has 58.99% of the RM2 billion loan while RHB has 32.41%. The other lenders are Alliance Investment Bank Bhd (4.06%), Malaysia Building Society Bhd (3.24%) and Hwang DBS Investment Bhd (1.29%).

1MDB’s loan with Maybank and RHB was first due on November 30, The Edge Financial Daily reported.

The paper also reported that top executives from 1MDB were given a dressing-down by Bank Negara recently. They were told in very strong terms that they will face action if the matter is not settled.

Arul admitted that 1MDB needs to improve communications and address concerns about its transparency and debt, especially in light of the criticisms the company has been facing.

“We have to recognise there are challenges, there are legitimate questions, legitimate queries that have been raised on 1MDB,” Bloomberg quoted him as saying

He added that 1MDB’s debt has a role in the company’s growth and expansion, which is no different to any other business.

“1MDB is a development company,” Kanda told Bloomberg, adding: “It takes time to develop, to first of all conceptualise and then construct these assets. That does not happen overnight.”

Arul, 38, is an investment banker, with extensive experience in structured finance, corporate finance and restructuring across multiple markets including London, the Middle East and Malaysia. He joins 1MDB from Abu Dhabi Commercial Bank, where he was executive vice-president and Head of Investment Banking.

Arul succeeded Mohd Hazem Abdul Rahman as chief executive officer under a transition plan, 1MDB board of directors chairman Tan Sri Lodin Wok Kamaruddin said yesterday.

1MDB had borrowings of RM42 billion and suffered a negative cash flow of RM2.25 billion in FY14 with its debt servicing at around RM2.5 billion.

- TMI