Major bailouts that rattle the nation in recent times

The white paper on Felda is the latest in major scandals that rock the country and force the govt to organise bailouts

by MARK RAO / pic by TMR FILE

The injection of billions of ringgit to revive the ailing Federal Land Development Authority (Felda) has again stirred discussions on bailouts of poorly managed state-related firms.

The white paper on Felda — the land development agency which is responsible to boost the wellbeing development of 110,000 settlers — is the latest in major scandals that rock the country and force the government to organise bailouts.

Felda needs about RM6.2 billion of capital injection from the government to revive its operations, failing which the statutory body will come to a halt.

The announcement about Felda’s corporate breaches, fraud and dubious transactions came after a few institutions had also required billions in capital injection or financial aid from the government.

The Malaysian Reserve looks at some of the largest bailouts in recent times with the development fund 1Malaysia Development Bhd (1MDB), without a doubt, being the largest financial fiasco that the government has to save.

1MDB

The 1MDB scandal that shook the world back in July 2015 is still reverberating across the world as authorities estimate about US$4.5 billion (RM18.5 billion) in 1MDB-linked funds have been funnelled to people close to the fund. It is the largest corporate bailout in absolute value in recent history.

Regaining the loss money is part of a larger financial burden. The government as the guarantor of 1MDB’s sizeable debt commitments is servicing the billions of debts and coupon payments for the various debt papers.

The state investment fund’s total liability reportedly stands at RM50.9 billion, including RM31.6 billion in principal payment, of which 84% or RM26.6 billion is maturing in five years.

A total of RM6.97 billion was paid by the Ministry of Finance on behalf of 1MDB from April 2017 to May last year, including a RM5.05 billion settlement paid to International Petroleum Investment Co PJSC for failure to meet repayments.

The grand larceny alleged in what is the world’s largest financial scandal, has forced the government to inject capital into assets related to the fund.

The sale of luxury yacht “The Equanimity” for US$126 million was the largest amount of money recovered from 1MDB to date and is part of ongoing efforts by Malaysia to recoup its losses.

The government is also aiming to recover US$7.5 billion in compensation sought from Goldman Sachs Group Inc for their alleged complicity in 1MDB and monies believed to have originated from the funds.

TH

The state-owned pilgrimage fund was the first to receive financial injection after bad investments, shady transactions and questionable decisions had risked the fund’s nine million depositors.

A RM4.1 billion in deficit, illegal dividend payouts since 2014 and accounting irregularities forced the government to acquire Lembaga Tabung Haji’s (TH) underperforming stocks and assets for RM19.9 billion before the end of last year.

The asset-for-cash swap included the transfer of 106 non-performing stocks from TH to special-purpose vehicle (SPV) Urusharta Jamaah Sdn Bhd for RM16.85 billion or 120% above market value.

A total of 29 properties were also transferred to the SPV at an inflated price of RM2.25 billion. The assets were paid from the issuance of sukuk and Islamic redeemable convertible preference shares.

TH’s deposits have also been placed under Bank Negara Malaysia’s (BNM) supervision after the pilgrim fund, which manages the haj of over 30,000 Malaysian Muslims every year, was found to be in breach of the TH Act 1995.

This marks a significant departure for the fund which was previously governed by its 1995 Act and under central bank scrutiny, TH will need to tread prudently.

TH recently announced a hibah distribution of 1.25%.

Felda

The government is providing a RM6.23 billion capital injection to restructure Felda’s multibillion ringgit debts which threaten to relegate the once potent economic and political force into obscurity.

A maelstrom of poor investment decisions, suspect deals and years of mismanagement caused the government-owned entity to rake up RM10 billion in losses and RM12 billion in debt by the end of 2017.

Investigations into former Felda officers and failed investments have damaged the once relished rural development agency.

The government is now looking to restore Felda’s commitment to its 112,635 settlers nationwide which requires a major overhaul of the statutory body. The agency’s liabilities rose to RM4.4 billion in 2017 and its cash balance shrank to RM35 million in May last year.

Felda’s 37% stake in Indonesia’s plantation firm PT Eagle High Plantations Tbk for US$505 million was about 96% higher compared to the share price of the planter during the acquisition.

MAB

Malaysia Airlines Bhd (MAB) continues to require capital injection as the government mulls whether to shut down, sell, find a partner or continue to be a subsidised entity.

The government injected RM17.4 billion in the ailing airline from 2001 and 2014, but the national carrier failed to return to profitability.

Its sole owner, sovereign wealth fund, Khazanah Nasional Bhd, took the company private and undertook a RM6 billion restructuring plan to return the company to the black by 2017.

MAB reported an RM812.11 million pretax loss that year and remained in the red in 2018, proving the RM23.4 billion spent to keep the airline afloat futile.

Barring further government intervention, Malaysia’s maiden representative in the commercial aviation industry may have already come to an end. The airline has received more than RM23 billion in capital injection in the last decades.