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1MDB may be dissolved under debt plan

KUALA LUMPUR — Malaysia’s indebted and controversy-ridden state investor 1Malaysia Development (1MDB) will be left as a skeletal structure and possibly dissolved under a debt repayment plan in which most of its assets will be sold, sources with direct knowledge of the matter told Reuters.

KUALA LUMPUR — Malaysia’s indebted and controversy-ridden state investor 1Malaysia Development (1MDB) will be left as a skeletal structure and possibly dissolved under a debt repayment plan in which most of its assets will be sold, sources with direct knowledge of the matter told Reuters.

The power and property fund, a pet project of Prime Minister Najib Razak, with assets worth US$14 billion (S$19.2 billion), was hit by losses last year and nearly defaulted on a loan payment. The near-miss drove down the ringgit as well as Malaysian government bonds and prompted calls from opposition leaders to make the fund’s accounts more transparent.

Under the aggressive restructuring plan crafted by new boss Arul Kanda Kandasamy and blessed by the government, the fund will sell 80 per cent of its power unit Edra Energy via a stock market listing, three sources with direct knowledge of the situation told Reuters.

More than RM18 billion (S$6.76 billion) of 1MDB’s debt linked to its power assets would go under Edra Energy ahead of the listing, which is due to be kick-started in six to nine months’ time, the sources said.

The fund, which has Mr Najib as chairman of its advisory board, will also sell the bulk of its land assets and stakes in two high-profile property projects, Tun Razak Exchange (TRX) and Bandar Malaysia, after splitting them into separate entities, as partially indicated in a strategic review unveiled last month.

The Finance Ministry, which is headed by Mr Najib and the sole owner of 1MDB, did not respond to a request for comment.

1MDB said in an email that Edra Energy would be monetised this year and that TRX and Bandar Malaysia projects would be ultimately owned by the Finance Ministry. This process would turn 1MDB into a skeletal structure that could eventually be dissolved completely, said one person, who spoke on condition of anonymity because of the sensitivity of the issue.

“It’s become a hot potato for the Malaysian government. It was just too much to handle,” said another source.

Political leaders, including former Prime Minister Mahathir Mohamad, have demanded an inquiry into 1MDB’s finances and are calling on the government to explain transactions that they allege had resulted in the siphoning off of public funds.

Mr Najib said on Wednesday that he had instructed the Auditor-General (AG) to independently verify 1MDB’s accounts after the allegations. The AG report will then undergo a transparent inspection by the Public Accounts Committee, a bipartisan unit, the Prime Minister said in a statement.

“If any wrongdoing is proven, the law will be enforced without exception,” he added.

The Cabinet was briefed by 1MDB and its auditor Deloitte after allegations surfaced about certain third-party transactions the fund had made.

“The Cabinet expressed confidence that no wrongdoing had been committed within 1MDB,” the statement said.

Opposition politicians in Malaysia yesterday welcomed the audit, but criticised the Cabinet for clearing the troubled sovereign wealth fund at the same time. Mr Lim Kit Siang, leader of the Democratic Action Party, questioned if the Cabinet ministers knew what they were doing and if they had understood 1MDB’s dealings in the past six years before issuing a “clean bill of health and integrity” to the firm.

“Surely, it is premature for the Cabinet to declare that 1MDB had done nothing wrong when the Auditor-General has yet to verify the 1MDB accounts,” Mr Lim said.

Mr Rafizi Ramli, secretary-general of the opposition Parti Keadilan Rakyat, called on the AG to disclose the terms of the audit. “I urge that the (audit’s) scope and terms be tabled in the coming parliamentary session, so it will be truly extensive and have transparency as its goal,” he said. AGENCIES

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