1 MDB's latest IPIC deal-The numbers look like they add up


While 1 MDB has been the subject of much criticism, this latest deal with IPIC does seem like one where the numbers add up.
The deal as reported , this far, involves 2 limbs:
a) A contribution of USD 1 billion from IPIC which 1 MDB is meant to use to settle a USD 975 million loan from a syndicate of Middle East banks led by Deutsche Bank

b) A further contribution of some USD 4 billion, in exchange for undefined "financial assets".


These numbers appear to match  those in the the following prior  transactions between 1 MDB and IPIC  as described by the DAP's Tony Pua:
“When 1MDB needed to raise funds in 2012 to acquire the independent power producers (IPPs), Tanjong Power and Genting Sanyen, 1MDB had to ask IPIC to provide a guarantee in order to raise the funds via two bond issues, each worth US$1.75 billion. The guarantee was necessary despite the fact that 1MDB priced the bonds very attractively at 5.99% coupon rate,” said Pua.
Pua said the guarantee was no “friendly gesture” on the part of IPIC, but instead came at an exorbitant price to 1MDB, which “contributed in no small way to the massive annual interest bill and cashflow crunch for 1MDB”. 
“Firstly, 1MDB had to dock approximately 40% of the loan with IPIC as security deposit. This amounted to RM4.47 billion (US$1.4 billion) as disclosed in the March 2014 financial statements. Effectively, this means that 1MDB is pay 5.99% interest on a US$3.5 billion loan despite having access to only 60% of the funds or US$2.1 billion.
Then , there is the  issue of the option issued Aabar, a IPIC subsidiary: 
“Secondly, 1MDB had to offer the option for Aabar to acquire up to 49% equity interest in Powertek Investment Holdings (PIH) and 1MDB Energy (Langat), which are the holding companies for the acquired IPPs in order to secure the guarantee,” said Pua.
Based on its full year March 31, 2014 financial statements, 1MDB disclosed that its subsidiary 1MDB Energy Holdings Ltd had taken a bridging loan facility of US$250 million in May 2014 to buy back these options granted to   Aabar, called ‘the Aabar options’.
“This represents a compensation to Aabar although the final settlement consideration isn’t yet known. In fact, it has been speculated that the options compensation might be as high as an incredulous US$1 billion, based on analysis by The Edge weekly,” Pua noted.
Given these prior transactions , this latest deal looks like it involves:
a) IPIC/Aabar releasing USD 1 billion of the  security deposit paid IPIC as part of the loan guarantee agreement
b) A novation of 1 MDB for IPIC, such that IPIC takes over 1 MDB's obligations pursuant to the two USD 1.75 billion 10 year note issues .This would be required given that the collateral underlying the guarantee has been weakened.Put in another way, note holders are not going to feel too comfortable knowing that the guarantor is short more than 70% of the collateral it had required to provide the guarantee in the first place.

Added together, IPIC's contribution totals USD 4.5 billion, at present time.Add to that total interest of about USD 1-1.5 billion payableover the next 7 years ,and the figure gets to USD 5.5 to USD 6 billion, less the USD 400 million left over from the deposit for the guarantee that would no longer be needed. Then, the total contribution would be in the USD 5-5.5 billion range,which is in the USD 5 billion ballpark of the original deals.

IPIC is not likely to be doing any of this for nothing, so the question  remains as to what IPIC gets in return.Recall that it has to pay interest of about USD 1-1.5 billion,  and in about 7 years, principal of USD 3.5 billion. 
It is not inconceivable that what IPIC gets is a share, if not all , of Edra Energy. Of course, Edra's assets might well be worthless, given that the bulk of the IPP contracts which underlie Edra's cashflow are mostly about to expire.
However, there is talk of injecting Edra into Tenaga Nasional Bhd,so it is not inconceivable that what IPIC gets for its trouble is a large chunk of TNB.
As I said,the numbers look like they add up.I did not however say that Malaysian taxpayers would like it.

END

Table of known 1 MDB debt: 



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