1MDB, TPPA, etc.

21st April 2016 

Good morning. The haze is back. The government is still using the PM10 measure instead of PM2.5. So, as a very rough guide, whatever readings the govt provide, just multiply that number by 1.5 times to get a proper gauge of the threat level. Make sure your kids have good masks.

Hazier than the current haze is the matter of 1MDB bonds, and by extension Malaysian bonds overall.

The IPIC – 1MDB legal quarrel has had a dramatic negative impact on 1MDB bonds, turning the 1MDB bonds to junk bond status.

The question on everyone’s mind is will this result in an overall Malaysian sovereign rating downgrade?

We have about RM650 billion of government bonds and another RM170 billion government guaranteed bonds. Will the market throw these bonds too?

A downgrade will effectively make future government borrowings harder and more expensive. If this happens, how will the government finance a deficit budget next year?

My prediction of a severe fiscal crunch in 2017 is unfortunately, on track.

Here are some photos of my 1MDB event on last Tuesday night with Tony Pua and Dr. Dzul.

 

26th April 2016 

A reader Andy, sent me this link this morning.

TTIP, the US-EU FTA, often called a sister agreement to the TPPA is being aggressively pursued by Obama. The Independent newspaper has just released an article stating that the British government’s own study shows that the UK will not benefit but will in fact take on a lot of risks by signing TTIP.

Sounds a lot like the PwC study commissioned by the Malaysian government, and yet we signed the TPPA. Will the politicians in UK also sign TTIP just to please American corporate interests?

You can read more about it here.

 

27th April 2016 

Last Thursday, I wrote about the possibility of the 1MDB bonds defaulting and warned of its implications to our other Malaysian bonds. I wrote the following:

“The IPIC – 1MDB legal quarrel has had a dramatic negative impact on 1MDB bonds, turning the 1MDB bonds to junk bond status. The question on everyone’s mind is will this result in an overall Malaysian sovereign rating downgrade? We have about RM650 billion of government bonds and another RM170 billion government guaranteed bonds. Will the market throw these bonds too? A downgrade will effectively make future government borrowings harder and more expensive. If this happens, how will the government finance a deficit budget next year?”

The default happened on Monday 5 pm (Tuesday trading day) and over a miserable USD50 million. The small amount is not the issue, it is the fact that we defaulted that is the issue.

So far the market is holding for the last 2 days and Malaysia’s sovereign rating looks intact for the time being. This is primarily because these bonds are implicitly and explicitly guaranteed by the government.

However, we know that the government is fiscally screwed. We have seen government pursuing austerity with cuts in JPA scholarships, even cycling competition grand prize is now a miserable RM30. This situation is set to deteriorate in 2017. So the market will now take a closer look at the financial position of the Malaysian government as a guarantor.

As the news of the default sink in and the 1MDB scandal set to blow up further, thanks to IPIC, I expect the market to remain negative on Malaysia. The only solution is for the Prime Minister to resign, thieves prosecuted and a clear and disciplined fiscal plan put in place to assure the market. This might be too much wishing thinking for this morning.

 

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- May 3, 2016

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