I have not written on this before but I think I should pen my thoughts this time. I do not like huge banks which continue to lower their lending standards and aiming at higher profit in the expense of ‘prudence’. Their thought? As they are too huge to fail, the government will bail them out. This is why financial crisis happens and it almost always start with the banks. Huge banks. What if the possibility now happens in Malaysia? 1MDB is nowhere near the size of a typical bank in Malaysia but it is still a huge ‘company’ by any standard.
1Malaysia Development Bhd (1MDB) has failed to settle a debt originally due on 30 November 2014. An extension was given till 31 December and this deadline was also missed. Now, another extension, presumably a final one was given. Deadline is 31 January 2015. Amount is RM2 Billion and it’s owed to a few local lenders such as Maybank, RHB, MBSB and Alliance Investment Bank. Since this is RM2 Billion, the amount is considered big and I think if payment is still not forthcoming by 31st January 2015, it will be a big issue not just within Malaysia but likely to be reported around the world. The first big failure in corporate Malaysia for 2015?
It’s ok if 1MDB would like to stress that this is just due to technicalities. However, the same reason cannot be used continuously. Perhaps it will incur some losses because RM has lost a lot of its value but this is all part of the currency exchange losses which every organization should already planned for. Otherwise, don’t go out of RM or Malaysia. Some details: 1MDB is supposed to get RM4.3 Billion from an investment fund in Cayman Islands and this would have enabled it to pay the RM2 billion easily. However, this has not reached its hands. Cash flow management is really not well at this moment and with the volatile business environment meant it may get worse. It is also reported that while all its loans are in US$, most of its earnings are in RM. This in effect meant that its loan amount has just increased slightly over 10% within a few months as US$ continues to appreciate versus RM.
I just hope no new ‘unforeseen circumstances’ come 31st January 2015. Aiming at huge profits meant also huge risks. Sometimes, things just do not work the way we wanted it to. Just have to always remind myself to manage the risks versus profits objectively. There’s no need to suddenly be very rich or very poor. ‘Sikit-sikit, lama-lama jadi bukit’ too.
written on 6 Jan 2015
Next suggested article: Property prices and developer’s profit margin
