1MDB: Less than RM8m to bid for 3B

PETALING JAYA: 1Malaysia Development Bhd (1MDB) has denied spending US$100 million (RM329 million) to win the Track 3B power plant project, saying that its consortium paid less than RM8 million to assemble and submit its bid for the 2,000MW coal power plant, about half the amount a business daily claimed other bidders spent for this stage.
"To our knowledge, no other bidder has come on record to reveal this information because this is confidential business information. We are making this known because we want to put to rest these baseless insinuations," 1MDB said in a lengthy statement in response to numerous reports on its business dealings and financing yesterday.
It also explained that the development cost or development fee paid to the project sponsor, which typically runs to between 5% and 8% of the project cost, to bring the power project to realisation was not a reimbursement cost.
"Our development cost - which is inclusive of any development fees incurred by the project partners, 1MDB and Mitsui - is 5.5% of the project cost, which is at the lower end of the scale," it said.
1MDB said its international-style project financing done in close partnership with Mitsui where equity is back-ended, is a first for Malaysia but common for large international projects.
The practice is said to help improve the project sponsor's equity return as payment is made upfront rather than from the operational cash flow of the project. The amount, it said, is negotiated and subject to lenders' approval.
"Furthermore, any accusations that our 3B sukuk bondholders will bear any hidden risks are completely untrue and irresponsible. Our bond exercise comes with a bank guarantee which ensures the promoters' commitment on the injection of equity. The security of cash flow and returns to bondholders is assured," said 1MDB.
IMDB also denied that it was given preferential treatment on tenders for power projects.
On its bonds and debt issuance, 1MDB it had been "unfairly compared" to that of Petronas's, as in terms of the interest rate both companies first paid to investment firms.
1MDB noted that the "particularly high" interest rate of 5.75% assigned to its RM5 billion Islamic bond issued in 2009 had a longer tenure 30-years, whereas Petronas paid an interest rate of 3.60% for a RM100 million bond with a three-year tenure.
Considering there was a significant difference in maturity periods for both 1MDB and Petronas, it said that it should not be surprising that the 1MDB-issued bonds had a higher interest rate.
IMDB noted with concern "unsubstantiated speculation" that a portion of interest rate was paid to 'middle-men' as a benefit payment of sorts.
"This is a serious allegation. We wish to make clear in unequivocal terms that the entirety of the 5.75% annual interest rate is paid to our bondholders, which includes some of Malaysia's leading institutions, twice a year in accordance with the payment schedule. To suggest otherwise or insinuate that a portion of this amount is being paid to middlemen is factually incorrect," it said.
It also touched on concerns raised about the commission and fees incurred by 1MDB for two additional debt issuances in 2012 and 2013, for US$1.75 billion and US$3.0 billion respectively.
It said both bonds were issued at a discount to ensure the successful completion of the fundraising in view of internal and external factors of the market, the speed to complete the offering and the scale of the underwriting.
It also denied that Goldman Sachs which underwrote both debt issuances made payments to third parties, an allegation it denied "in unequivocal terms."
1MDB went on to say that all of its debt which totalled RM37 billion were backed by RM44.67 billion in assets.
"We have never missed a payment schedule, nor do we intend to do so. Our consistent ability to raise funds on the international markets, and from quality investors, reflects the confidence they place in us. The listing of our energy business is one of a series of exercises that we intend to carry out to deleverage our balance sheet."