Friday, 3 April 2015

What is 1MDB

1. What is 1MDB?

1MDB is a strategic development company formed in 2009 to act as a catalyst, incubator and manager of large scale, very long-term national interest strategic projects to move Malaysia to a high-income nation and continue to provide growth and opportunities for Malaysian companies and individuals for decades.

1MDB also serves to attract and provide reciprocal investments in opportunities with governments and large companies worldwide with the focus on developing Malaysia.

1MDB is not a sovereign wealth fund. A sovereign wealth fund invests excess money – either from national savings or from FOREX reserves. However, 1MDB was mandated to borrow money from the financial markets via long term bonds, with tenures as long as 30 years, and to ensure that the projects carried out by 1MDB is commercially viable and will earn a return that is higher than the cost of borrowing.

While 1MDB has been tasked to eventually generate a reasonable profit from its projects, 1MDB's objectives was never to be a sovereign wealth fund with the sole focus being on short-term yearly profits and returns since inception.

Much of the benefits that 1MDB aims to generate for Malaysia can not be directly measured in the profit and loss in 1MDB books but in terms of the additional GDP growth added, the GNI and the high value jobs that 1MDB projects brings to Malaysia as a country.

2. Why the need for 1MDB and not use existing companies such as Khazanah, SP Setia, Sime Darby, TNB or Petronas?

1MDB only ever had RM1 million direct funding from govt. All the rests are borrowed. This is already a differentiation feature from Khazanah, SP Setia, Sime Darby, TNB or Petronas.

1MDB projects typically requires long gestation periods requiring large cash outflows during the initial periods and in project sectors that may not be in-line with the objectives of the mentioned funds or companies.

For example, the TRX to be built on a 28.33-ha land will take 15 years to complete with the initial years requiring significant cash outflows to purchase, relocate existing premises and residents on the land, attracting foreign investors, developing the plans and working with the relevant statutory bodies for regulation and tax incentives.

1MDB also engages in projects that more commercially-minded organizations will find to be less profitable or not-profitable such as the RM383million spent by 1MDB on Corporate Social Responsibility (CSR) projects or the RM1.38 billion spent to purchase land in Penang to build 9,999 affordable housing.

Additionally, some of the companies mentioned are public-listed companies whose focus is to maintain continued growing profitability and share prices. Projects of the nature that 1MDB is doing may not match the risk profiles and corporate objectives of the listed companies.

However, as 1MDB's major projects reaches greater maturity, financial visibility and stability, 1MDB plans to invite the above GLCs and the private sector to undertake, either as a Joint-Venture or to off-take parts of 1MDB projects for further development and commercialization

1 comment:

reza al-razi said...

Salam ziarah.. dah lama tak jengok sini.. :)