Wednesday July 22, 2009, The Star
By Jagdev Singh Sidhu
KUALA LUMPUR: The Terengganu Investment Authority (TIA) is being expanded to a federal entity called 1Malaysia Development Bhd (1MDB) with the aim of investing billions of ringgit in energy, real estate and hospitality sectors in the country, according to a statement from the Prime Minister’s office.
It was earlier proposed that the TIA would raise RM11bil for investments, of which RM5bil were to be government-guaranteed bonds while RM6bil were bonds to be collateralised by oil royalty payments to the state of Terengganu
The King, who is also the Sultan of Terengganu, has consented to the arrangement. The new entity will be wholly-owned by Ministry of Finance Inc and will report directly to the Prime Minister. The Cabinet has also given its approval in principle.
The statement said more details would be released in the coming weeks.
Meanwhile, 1MDB will invest in collaboration with Abu Dhabi’s Mubadala Development Co, which has expressed interest in investing US$1bil in those sectors.
According to the statement, Prime Minister Datuk Seri Najib Tun Razak said he had fruitful talks with Abu Dhabi Crown Prince General Sheikh Mohamed Zayed Al-Nahyan during his one-day private visit to Abu Dhabi. In the meeting, Sheikh Mohamed Zayed, who is also chairman of Mubadala Development, a sovereign wealth fund wholly-owned by the Government of Abu Dhabi, expressed interest to invest US$1bil in energy, real estate and hospitality sectors across Malaysia via Mubadala, in partnership with a Malaysian sovereign wealth fund.
“To advance further and make this investment work, the Government has decided for TIA to be expanded into a federal-based sovereign wealth fund to be known as 1Malaysia Development Bhd for its benefits to be felt across Malaysia,’’ Najib said in the statement.
“1MDB is to drive sustainable, long-term economic development for Malaysia by forging strategic global partnerships and promoting foreign direct investment (FDI) for Malaysia to further enhance the multiplier effects for the Malaysian economy.”
1MDB, which will be run on the concept of matching FDIs, will be a fund that in essence looks to invest in companies that have equity value on a stock exchange but have a high mulitiplier effect on growth.
By becoming a sovereign wealth fund, 1MDB will have Malaysia as its priority instead of just one state, according to a source. It puts all states on equal footing at a time when there are a couple of states that are tinkering with the idea of establishing their own state-based investment funds.
Establishing the 1MDB will also do away with the Government to provide further guarantees for other state-based funds.
1MDB would take over the cash already raised by TIA and allow Terengganu to continue using its oil royalities in its traditional manner, the source added.
Although 1MDB reports directly to the Prime Minister, the sovereign fund will still have an eight-member board of advisors and a five-member board of directors.
The directors would be from established statutory bodies and would allow those funds to participate in investments made by 1MDB if they chose to do so, the source said. – End-
_______________________________________________________________________________________________________________________
A great trade-off
Saturday July 25, 2009, The Star, Sideways
By ANITA GABRIEL
WHEN the Terengganu Investment Authority (TIA) was set up with its much-touted air-tight governance structure, no one doubted that the biggest test to its paper-perfect concept would be in its execution. What we weren’t prepared for was how soon that test would come. Rhetoric, meet reality.
For as long as the RM5bil was “pretend” money which had yet to be raised, everything was fine. Sadly, however, as soon as the coffers were filled up with RM5bil, raised through a government-guaranteed bond issued in late May, it is believed to have sparked a disconnect between the state and federal governments. Then, a couple of other states were also eager to set up a similar entity and as expected, had approached the Government to provide a guarantee for the funds it hoped to raise.
With that, it is isn’t hard to understand how TIA had morphed into 1Malaysia Development Fund – a federal-based Sovereign Wealth Fund with a wider developmental agenda covering all states and this – there is no doubt (hence no wrangling) over who the money ultimately belongs to. With that, TIA, wholly owned by the Menteri Besar of Terengganu (MB Inc) is now 1MDB, wholly owned by the Ministry of Finance, Inc, reporting directly to the Prime Minister.
TIA had raised much hope and anticipation in promising to be a structure that would put the people of the state above politics and self-interest. Now, for the people of Terengganu, one of the poorest states in the country despite the fact that it is oil-rich, the elephant has returned to the room – how will the state’s oil royalties flow down to them, increase economic activity and be utilised for the long-term economic and social sustainability of the state, all of which formed the very premise for the establishment of TIA? Will it form a new investment arm to meet these objectives?
And what about the utilisation of the oil royalty which has long been shrouded in secrecy – would there be more accountability and clarity? Without a doubt, these are the issues the Menteri Besar of Terengganu Datuk Ahmad Said will need to tackle urgently in line with discharging his responsibility to the people and to silence the sceptics. Let’s also not forget that the climate is somewhat more unforgiving today.
As for the setting up of 1MDB, not many are scrambling to get their bearings, least of all the bondholders. Let’s face it – the papers were government-guaranteed and the ownership has transferred from state to federal, which is hardly worry-worthy from an investor’s perspective.
Similarly, 1MDB will be governed by a check and balance system comprising the board of directors, board of advisers and a senior management team.
It is believed that Felda Holdings group managing director Datuk Mohd Bakke Salleh will be appointed chairman of the board of directors which will comprise Tan Sri Azlan Zainol (the Employees Provident Fund CEO), Datuk Ismee Ismail (Lembaga Tabung Haji group managing director/CEO), Tan Sri Lodin Wok Kamaruddin (Lembaga Tabung Angkatan Tentera CEO) and Shahrol Halmi, who it is believed will also be CEO.
The establishment of 1MDB, however, does throw up some other questions. How different is it from Khazanah Nasional Bhd? Khazanah describes itself as a “trustee of the nation’s commercial assets” with the main objective of contributing to the nation’s long-term economic interests. On the other hand, 1MDB aims to “drive sustainable, long-term economic development for Malaysia by forging strategic global partnerships and promoting foreign direct investment (FDI).” Same difference, you say?
If there is more than one “sovereign” vehicle in the country eyeing multiple opportunities, could it dilute the “fire power” of any one of these entities in the event there is an overlap? The one striking difference, however, is that 1MDB will be run on the concept of matching FDIs.
Ultimately, however, whether it’s state-owned or federal-owned, the benchmarks ought to be the same in terms of accountability and transparency. This begs the question – now that it is federal-owned, should we be less concerned?
