1MDB defends Cayman funds, says it benefited amid softening ringgit
The decision to invest billions of ringgit in funds abroad is a financially astute move, said 1Malaysia Development Berhad (1MDB) today, adding that it has helped the company make substantial gains at a time when ringgit is softening against the US dollar.
In a statement posted on its blog, the strategic development company also said such move has also helped mitigate its foreign exchange risks.
"Essentially, investing some of our cash reserves, specifically those in US dollars, in international fund jurisdictions such as the Cayman Islands has helped mitigate our foreign exchange risks and allowed the funds invested there to benefit from the comparative strength of the US dollar," it said.
1MDB was responding to PKR lawmaker Wong Chen's demand today for the firm to repatriate its money as it had made huge gains due to the slide of the ringgit against the US dollar.
The ringgit had declined by 6.5% in the past nine months to RM3.48 (as of yesterday) against the greenback.
The Kelana Jaya MP had said the funds, which were likely in US dollars, were moved to the Cayman Islands, known as one of the world's largest registered fund jurisdiction, in September 2012 when the exchange rate between the greenback and the ringgit was at US$1 to RM3.07.
Since then, the funds had made substantial exchange rate gains of 13% or 41 sen.
"Having made substantial foreign exchange gains, why can’t 1MDB repatriate its funds to Malaysia?" he had asked earlier today.
1MDB replied that if the funds were brought back to Malaysia, it would have suffered a comparative loss of 13% given the ringgit’s depreciation over the current period.
Additionally, since a portion of 1MDB’s debt is in US dollars, the funds parked in the Caymans acts as a natural currency hedge.
"Whilst most of this debt is long term with a maturity over 10 years, in the event that we were required to pay off these liabilities today and had to depend solely on our reserves held in ringgit, this would have cost the company an additional 13% – in line with the fall in the value of the currency since September 2012," it said.
1MDB has been criticised by former prime minister Tun Dr Mahathir Mohamad, who said that a large part of the money raised from the issue of debt paper by 1MDB has been sent to the Cayman Islands, a move which many, including the opposition, had also questioned.
Critics have complained about the lack of transparency in how the money was managed out of the Caymans and it has been estimated that at least RM18 billion was parked there.
However, chairman of the firm's board of directors Tan Sri Lodin Wok Kamaruddin had said last night that there was nothing unusual about companies of 1MDB's size investing their funds in the Caymans, with the Cayman Monetary Authority recognised as one of the leading fund regulators in the world.
He added that thousands of international blue-chip companies have funds regulated by the Cayman Monetary Authority, including more than 200 Malaysian companies. – December 23, 2014.
