The government-owned 1Malaysia Development Bhd (1MDB) may as well seek funds from loan sharks, based on the exorbitant payments it made just to secure a loan guarantee for its subsidiaries, Petaling Jaya Utara MP Tony Pua says

"1MDB might as well have gone to the loan sharks to raise the funds.

"It is mind-boggling why a 100 percent Finance Ministry -owned subsidiary needs to become so desperate in paying such outrageous fees, costs and terms in order to secure financing for its activities," Pua said.

In the latest case, he said, two of 1MDB's subsidiaries spent a whopping US$250 million (RM838.25 million) to secure a loan guarantee from an Abu Dhabi government investment holding company, International Petroleum Investment Company (IPIC).

This was after the subsidiaries 1MDB Energy Ltd and 1MDB Energy (Langat) Ltd failed to obtain the funds needed despite issuing a 10-year bond to raise US$1.75 billion each at a handsome coupon rate of 5.99 percent.

The combined US$3.5 billion fund was intended for the acquisition of independent power producers (IPP) Tanjong Energy and Genting Sanyen by the respective companies.

Forced to seek third party guarantee

This forced 1MDB to seek a third party guarantee, from IPIC, to ensure a successful fund raising, but at an "exorbitant" cost, said Pua.

Among the conditions imposed, he said, was that 1MDB had to park 40 percent of the loan or US$1.4 billion of US$3.5 billon as security deposit with IPIC.

"Effectively, this means that 1MDB is paying 5.99 percent interest on a US$3.5 billion loan despite having access to only 60 percent of the funds, or US$2.1 billion," he said.

He added that 1MDB also had to offer the option for Aabar Investment, a subsidiary of IPIC, to purchase 49 percent equity interest in Powertek Investment Holdings (PIH) and 1MDB Energy (Langat), which are the holding companies of the purchased IPPs.

"Based on the latest financial statements, 1MDB disclosed that its subsidiary, 1MDB Energy Holdings Ltd, has taken a bridging loan facility of US$250 million in May 2014 to buy back these options granted to Aabar Investments.

"Effectively, this US$250 million represents a fee paid to IPIC in order to secure its corporate guarantee for 1MDB subsidiaries to raise US$3.5 billion, or approximately 7.1 percent of the funds raised," he said.

Pua said this is on top of earlier revelations what 1MDB had paid US$350 million in commissions, fees and expenses to Goldman Sachs for managing the deal, which has come under heavy criticism in Parliament.

"Taking all of the above cost of funds – US$250 million and US$350 million - and the locked deposit of US$1.4 billion, 1MDB’s subsidiaries have taken a loan of US$3.5 billion (RM11.8 billion) will work out to an unheard of 13.98 percent effective interest for a so-called 'sovereign wealth fund'.

"The loans are practically sold like junk bonds," Pua added.

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