BY UNA GALANI

The empire-building days of 1Malaysia Development Berhad are over. To reduce its near-$12 billion debt pile, the sovereign vehicle spearheading ambitious government projects has promised not to make any new investments and will bring in equity partners. A well-handled revamp of the energy-to-real estate fund, whose advisory board is led by Prime Minister Najib Razak, could restore investor confidence in the country.

Following a strategic review by new chief Arul Kanda, 1MDB will run its three main units as standalone entities. Money will be raised this year from the energy assets, probably through a flotation which had previously been delayed. Government-linked and private partners will be sought for the firm’s two big real-estate projects, which include the development of a big new financial centre in Kuala Lumpur. Other land may also be sold.

Worries about 1MDB have intensified after it recently postponed the repayment of a 2 billion ringgit loan ($553 million). The vehicle said on Feb. 13 that it had finally settled this without providing any details, or explanation for why it took so long.

The opacity has been unnerving: investors had begun to worry that 1MDB had become a contingent liability for the government, even though it is supposed to raise and invest its own capital. Alongside a collapse in the oil price, growing anxiety about the sovereign vehicle has contributed to a 7.3 percent fall of the Malaysian ringgit against the dollar in three months, while the equity market has been one of the worst performers in Southeast Asia.

1MDB hasn’t been an entire failure. It has built a new energy champion for Malaysia and laid the foundations for mega real-estate projects in the capital. However, it has been dogged by controversy, overpaying for assets and forking out high fees on two Goldman Sachs-led bond issues.

The saga has been damaging for the prime minister, who established the vehicle six years ago. It is unclear if he will continue to advise the fund or its units after the restructuring. Either way, if 1MDB can transform itself transparently and effectively, that will be a big boost to Malaysia’s standing.

First published Feb. 18, 2015

(Image: REUTERS/Olivia Harris)