Three government agencies have been urged to dispose their combined RM4 billion investments in bonds issued by 1Malaysia Development Bhd (1MDB) and its subsidiaries to prevent a cross-default.
Pandan MP Rafizi Ramli said in the event 1MDB or its subsidiaries default on loan payments, then it would have problems paying its major bondholders such as Tabung Haji, Employees Provident Fund (EPF) and Retirement Fund Incorporated (KWAP).
Rafizi said the risk of default was real, citing reports on the possibility that a consortium of six foreign banks were now demanding that 1MDB pay its US$975 million (RM3.6 billion) loan four months ahead of schedule .
"By disposing the bonds now, it may cause the bond price to be discounted by six percent.
"But (in the event of a cross-default), the price would drop further," the PKR vice-president ( photo ) added at a press conference at the Parliament lobby.
Rafizi said Putrajaya would not allow 1MDB to default on its payments to banks to prevent the capital market from crashing.
Thus, he speculated that the first step Putrajaya would take to save the market is to prevent GLCs - such as Tabung Haji, EPF and KWAP - from demanding payments from 1MDB so that the company can pay the banks and foreign investors first.
"So, the depositors will be the last persons to make a claim - they will get whatever that's left over," he said.
The RM1.72 billion bond investment by EPF is safe and it has priority to collect the fund through the process of liquidation of 1MDB's assets in case things go wrong, EPF chief executive officer Shahril Ridza Ridzuan was reported as saying yesterday.
'EPF chief's reason not valid'
"The reason given (by Shahril Ridza) is not a valid one," said Rafizi, who is also PKR secretary-general.
"In fact, the risk is no longer confined to 1MDB only, but to the whole country and the Treasury," he said.
"The government has guaranteed the numerous 1MDB subsidiaries. Given the fact that our debt level has reached RM700 billion if we take contingent liabilities into account, the government cannot absorb 1MDB's RM42 billion debts," he said.
This may lead to a re-negotiation of the terms and for the rescheduling of the bonds, and the government may in turn offer lands and other assets in replacement, Rafizi said.
"As such, it will not be easy to collect debts from 1MDB if it fails."
Rafizi also revealed, at the press conference, copies of briefing papers that he said were presented to the cabinet by Second Finance Minister Ahmad Husni Hanadzlah ( photo ).
Dubbed '1MDB Fact Sheet', the documents revealed that KWAP was among four buyers that inked agreements with 1MDB to purchase assets in the controversial Tun Razak Exchange zone.
A head of terms for a sales and leaseback agreement was signed between KWAP and 1MDB Real Estate (1MDB RE) for the purchase of a 900,000sq ft commercial office tower.
The other three buyers are listed as Australia's Lend Lease, Prudential and Gamuda Bhd, according to the document which carries a 'Confidential' stamp.
Lend Lease signed its head of terms for a joint venture with 1MDB RE to develop the lifestyle quarter, with a retail mall, three residential buildings and a five-star hotel over a total area of 5.4 million sq ft, according to the document.
Prudential has inked the head of terms for sale and leaseback of a 370,000sq ft commercial office tower. 1MDB will be the developer and owner of the tower.
Gamuda signed the head of terms for the sale and purchase of an 800,000sq ft serviced apartment tower. Gamuda will purchase outright for development, according to the document.
"I demand that the second finance minister verifies whether these briefing papers were tabled to the cabinet. What were the terms, as stated in the agreements?" Rafizi asked.
"KWAP and 1MDB have stressed that their deal (wasn't finalised or) was non-binding, but why bother to sign a head of terms agreement that is not binding?
'Even a loan inked on tissue paper is valid'
"Even a RM200 loan inked on tissue paper has a binding effect," Rafizi said, adding that the Najib administration should not treat the rakyat as though they are foolish.
"Signing the head of agreement is the first part of the sale and purchase agreement, as it normally takes one year for such an agreement to be completed," he added.
On May 11, The Star reported that KWAP was planning to buy land in TRX at RM2,300 per square foot to build its new headquarters.
KWAP also confirmed that it was eyeing land in the Tun Razak Exchange zone owned by 1MDB, but stressed any decision would be based on commercial considerations.
KWAP signed a non-binding head of terms with 1MDB RE last year, according to 1MDB RE chief executive officer Azmar Talib.
Widespread criticism of the controversial land deal between 1MDB's TRX and Lembaga Tabung Haji has caused Tabung Haji to sell what it had purchased.
Tabung Haji paid RM188.5 million for 1.56 acres of the 70-acre TRX land.
1MDB had purchased the entire 70 acres from the government for a mere RM194.1 million.
This translates to a purchase of RM2,773 per square foot by Tabung Haji, compared with the purchase price at which 1MDB obtained the land from the government - at only RM64 per square foot.