MP SPEAKS On Thursday Nov 20, Deputy Finance Minister Ahmad Maslan boasted at a press conference in Parliament that he is “confident that 1MDB will return to profitability [in financial year 2015]”. ( The Edge Financial Daily , Nov 21, 2014)
Ahmad Maslan should learn from his recent experience in Parliament where he had to “edit” his parliamentary reply and apologise for having “unintentionally” misled the House over the issue of the Federal Government’s “letter of support” for 1MDB loans.
He should not be making promises of 1MDB’s profitability for the financial year ending March 2015 when he has no power to assure Malaysians of 1MDB’s ability to achieve profitability.
Since 2011, 1MDB has achieved profitability entirely as a result of revaluation of properties which were sold to 1MDB by the federal government at heavily discounted prices.
In 2011, 1MDB made a profit of RM544 million on the back of a property revaluation of RM827 million.
In 2012 and 2013, 1MDB continued to make profits of RM45 million and RM778 million on the back of RM570 million and RM2,736 million in property revaluation respectively.
For the most recent financial year, 1MDB made a loss of RM665 million despite a revaluation of RM897 million.
Bleeding losses, paper gains
Hence from 2011 to 2014, while 1MDB reported cumulative net profit of RM690 million, 1MDB would have made a staggering cumulative loss of RM4.33 billion without the paper gains arising from the revaluation of properties which were sold to 1MDB at basement prices.
Therefore barring another round of exorbitant revaluation of its property assets, the company will continue to bleed heavily in 2015 because the operational profit from its power plants is far from being able to overcome the interest arising from its RM42 billion monster debt.
In 2014, 1MDB’s financing cost rose to RM2.4 billion. However, it’s operating income amounted to a paltry RM37 million while other operating income comprising of investment dividends and interests, amounted to RM751 million.
Hence without taking into account the property revaluation, 1MDB would have lost RM1.61 billion instead of the reported RM665 million.
For 2015, 1MDB’s operating income is not going to increase because the new contracts for power plants are not even built yet.
At the same time, work hasn’t even started for Tun Razak Exchange and Bandar Malaysia for any revenues to be recognised.
Since financing cost is expected to be even higher due to costly loan restructuring which was undertaken, 1MDB would therefore be thanking their lucky stars if the losses were not higher for the year ending March 2015.
Go study financial reports
The deputy finance minister should hence not try to be too clever by giving promises that 1MDB will return to profitability for the next financial year end and end up with more eggs on the face.
He should also not cover up 1MDB’s appalling performance and returns by claiming that 1MDB has spent RM382 million on Corporate Social Responsibility (CSR) projects. The money spent on CSR did not come from the cash profits generated by the company, but instead are raised from the massive debt incurred by 1MDB which are substantively guaranteed by the federal government.
Instead, Ahmad should diligently study the 1MDB financial reports and properly understand the cause and source of 1MDB’s losses and cashflow problems before commenting further on the subject.
TONY PUA is DAP national publicity secretary and member of parliament for Petaling Jaya Utara.
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