Debt has always been an efficient tool?

Article in The Star: "Debt raising vital for Khazanah stable of enterprises"

One snippet:

"DEBT has always been an efficient tool for finance and investment and it comes to no surprise that the list of companies that have the largest amount of debt includes some of the largest companies on Bursa Malaysia."

That is a rather remarkable statement in itself. 

I would therefore like to add some counterweight:

"Debt has also always been an efficient tool to bancrupt a company in the fastest possible way".

There are worldwide many, many examples of companies that used too much debt and did not live to tell the tale.

One reason for the increased risk of bancruptcy is that earnings are simply too low (or even negative) to sustain the debt payments.

Another reason is that despite having reasonable earnings a company might run into cashflow problems.

The stable of enterprises of Khazanah might have more options to increase debt even more (through Khazanah), but that might not always lead to the desired outcome and even increase the problem. MAS might be one example in this category.

Also, easier debt from a GLF like Khazanah might give a company a possibly unfair advantage over its privately funded rivals.

An example of a heavily indebted company outside the Khazanah stable is 1MDB, a story that most likely will end very costly for the Malaysian taxpayers.

1MDB, many questions, not many answers

KiniBiz has recently written several rather interesting articles about 1MDB:

1MDB: Giant ponzi scheme or strategic investment fund?

1MDB's colourful family and friends

A description of all the key players and advisers of 1MDB.

Regarding Taek Jho Low (also known as J Low), it is mentioned that he rubbed shoulders with Paris Hilton, Jamie Foxx and Leonardo DiCaprio.

The article doesn't mention the RM 5 million that J Low spend on a single evening in Dubai, trying to woe Taiwanese singer Elva Hsiao, according to this article:

"Although she was touched to tears, Elva allegedly rejected his 'proposal'."

A rather expensive rejection. But at least J Low still has the following priceless memory:





1MDB loans to PetroSaudi put nearly RM6 billion at risk

Up to RM4 billion in bond pricing losses


Another relevant article is from the Financial Times blog:

1MDB of Malaysia’s $1.75bn bond: one puzzle wrapped up in another

"The ingredients were always going to be interesting…

• Ananda Krishnan, or AK, one of Malaysia’s richest tycoons: check.
• 1MDB, a Malaysian sovereign wealth fund: check.
• Goldman Sachs: check.
• Sheikh Mansour-led Ipic of Abu Dhabi: check."

"When the pricing was leaked, rival bankers huffed and puffed, berating Goldman for selling 1MDB an expensive, overly-complex structure."

"Bankers are wondering why an Abu Dhabi government investment fund would guarantee what is essentially Malaysian sovereign debt. After all, 1MDB has secured a Malaysian state guarantee in the past. Why is a Gulf emirate, many miles away, guaranteeing this bond?"


Many questions are asked in the articles, but not many answers given, 1MDB seems to be shrouded in secrecy, which is not good, since it is owned by the Malaysian public. Hopefully one day we all will know what exactly has happened and why.

the Global Debt Clock

From the website of The Economist, the Global Debt Clock.

Situation in 2001:

Situation in 2013 (forecasted):

Globally the debt has risen from USD 18 Trillion to USD 51 Trillion, 2.8 times as much, or a year-on-year growth of 9%. Very worrisome, since global growth has been much lower.

I am not sure if all numbers are correct. In the Malaysian situation for instance I read somewhere that government guarantees of debt are not counted in the overall number.

The debt in Singapore appears very high, but surely this must be offset by huge amounts of assets overseas which are much more valuable than the debt.

6 Trillion of fake Bonds seized

According to Bloomberg, "Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt."

From here the story just gets weirder: "The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. Officials for the embassy didn’t have an immediate comment." ...

And weirder: "The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police." ...

And really, really weird: "The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement."

Ok great, however one thing we don't get is just how can $6 trillion in glaringly fake bombs [sic] be a "threat to international financial stability."

http://www.zerohedge.com/news/6-trillion-us-bonds-seized-zurich?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29


This is how one Trillion looks like:

Malaysia is well under way to have a national debt half that size in RM, with each note being a RM 100 note. The size of that debt has been downplayed by several people in high positions. I am much less optimistic, given the fact that the debt has continued to grow, even in good economic times.

More pictures:

http://usdebt.kleptocracy.us/