Property gains drove 2012-13 profits for Malaysia state investor 1MDB-accounts

Tue Apr 22, 2014 7:24am EDT

* Accounts show property revaluation drives profit rise

* Fund last week reported FY net 778 mln ringgit vs 44.7 mln

* Accounts show property revaluation gains totalling 2.7 bln

* Without revaluation 1MDB would have made 1.85 bln loss

By Yantoultra Ngui and Al-Zaquan Amer Hamzah

KUALA LUMPUR, April 22 (Reuters) - Malaysian state investment fund 1Malaysia Development Bhd (1MDB) relied on a sharp revaluation of its property assets to drive profit growth in its last financial year, accounts released on Tuesday showed.

The improvement came despite 1MDB paying more than 10 billion ringgit ($3.1 billion) to buy power businesses in the past two years.

1MDB, whose board of advisers is chaired by Prime Minister Najib Razak and which has been criticised for a lack of transparency, last week reported a net profit of 778 million ringgit for the year through March 2013, up from 44.7 million the previous year.

The detailed accounts released by the country's Companies Commission show the earnings rise was driven by property revaluation gains totalling 2.7 billion ringgit, without which 1MDB would have posted a loss of 1.85 billion ringgit.

The fund has been dogged by negative publicity over massive fees paid to investment bank Goldman Sachs for bond sales, a near one-year delay in publishing its 2012-13 financial accounts and, most recently, changing auditors for the second time since 2009, as Deloitte replaced KPMG.

Its audit fees jumped to 3.15 million ringgit in 2012-13 from 184,000 the previous year.

The fund has revalued its property assets sharply higher for three straight years, leaving its real estate portfolio worth a total of 6.2 billion ringgit by the end of the 2012-13 year.

Some critics say the lack of other major profit drivers raises doubts over the fund's success and value for taxpayers five years after it was set up by Najib's government.

1MDB officials could not immediately be reached for comment, but the fund said in its accounts that the revaluation was due to a classification of some of property assets as investments after it adopted new Malaysian financial reporting standards.

FUNDS RE-INVESTED

Land for Bandar Malaysia and Tun Razak Exchange (TRX) - two major developments planned for the capital Kuala Lumpur - were among those reclassified, while their blueprints are being finalised.

Proceeds of $3 billion raised for TRX were placed under the management of an unnamed financial institution, according to the accounts. Because the blueprints for the TRX project have not been finalised, 1MBD said it had re-invested $1.6 billion of that amount.

The long-delayed accounts were released as 1MDB is expected to bundle some 15 power plants in Malaysia, the Middle East and south Asia together for a stock market listing that could raise up to $2 billion this year.

Its revenue for 2012-13 amounted to 2.59 billion ringgit, generated from energy payments, capacity charges and finance lease income, the accounts showed.

1MDB has 7.2 billion ringgit parked in the Cayman Islands tax haven, under a "segregated portfolio company" that is marked "for sale" in its balance sheet, the accounts also showed. The unit said last September it would pay a cash dividend of $133.4 million and a would make a capital distribution of $65.4 million.

The Cayman Island funds are from the disposal in 2012 of 1MDB's stake in 1MDB International Holdings Ltd, which held 49 percent of PetroSaudi Oil Services Ltd and held the option for the remaining equity portion.

Prospects for the listing of 1MDB's power assets were lifted in February when the sovereign wealth fund won a closely contested government tender to build a $3.6 billion coal-fired power plant in Malaysia.

The firm cited the win to justify an impairment loss of 1.9 billion ringgit on its balance sheet, the price premium it paid on acquiring several energy assets to "build further value".

$1 = 3.2505 Malaysian Ringgit) (Editing by Stuart Grudgings and David Holmes)

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