Sabah Government rejects baseless allegations and warns of consequences for spreading misinformation

12 June 2024

KOTA KINABALU: Sabah’s Minister of Finance Datuk Masidi Manjun rejects the baseless allegations being spread online attempting to link the recent fund-raising exercise of SMJ Energy Sdn Bhd (SMJE) as akin to the 1MDB scandal.

In a statement, he said all parties and individuals concerned must stop spreading false information and making reckless statements to the public.

Parti Warisan Sabah President and Senallang Assemblyman, Datuk Seri Panglima Shafie Apdal has made totally unfounded accusations that aim to mislead the people of Sabah with regards to the State Government’s GLC restructuring exercise, namely SMJE’s acquisition of Sabah International Petroleum Sdn Bhd (SIP) and the restructuring / refinancing of its loans with Sabah Development Bank Berhad (SD Bank).

On the acquisition of SIP by SMJ Energy Sdn Bhd and Utilisation of RM900 million Sukuk, he said it has already been confirmed in the State Assembly sitting in November 2023 followed by a a press statement issued by the Permanent Secretary of the Ministry of Finance Sabah on 29 May 2024, that the acquisition of SIP by SMJE and the restructuring of SIP’s debts through a RM900 million Sukuk issuance is a value-accretive move that brings the following benefits:

SIP will save over RM60 million per year in interest as the Sukuk interest are much lower than the interest payable to SD Bank; SD Bank’s outstanding bond is now reduced by RM700 million and can continue its core operations as a development bank to fund projects in the focus area of power, water and infrastructure;

As a result of the restructuring, SMJE received RM397 million through SIP’s 10 per cent ownership of Petronas LNG9 Sdn Bhd (PLNG9). The 10 per cent ownership of PLNG9 (now transferred from SIP to SMJE) will continue to generate an estimated revenue of RM150 million per year for the next 13 years for SMJE; and 4. SIP’s other operations and assets, including its off-shore services and assets (FPSO/FSO) have generated RM271 million in revenue for SMJE since the acquisition.

The Sukuk Wakalah programme is subject to a strict utilisation of proceeds covenants which include financing capital expenditure, covering costs related to energy-related businesses, refinancing existing and future Islamic financings, and defraying associated expenses.

“The Sukuk proceeds were used to refinance SIP’s existing borrowings with SD Bank which is in compliance with the Sukuk Wakalah programme and adheres to Shariah-compliant principles approved by the Securities Commission Malaysia as part of the corporate restructuring exercise.”

As a former Chief Minister and Minister of Finance, he should know that for the Sukuk Wakalah to be issued, there must be a clear and defined condition for how the funds will be utilized, he stated adding investors were extremely confident with this issuance which led to SMJE’s Sukuk Wakalah programme being over-subscribed by 3.9 times, thus enabling SMJE to obtain very competitive interest rates from the capital market. This inaugural sukuk had been recognized by the Edge publication as the best non-IPO fund raising deal of 2023.

“If there was even a hint of any impropriety, do you think the Edge publication would recognise SMJE’s Sukuk issuance? Furthermore, RAM a credible rating agency in Malaysia has assigned a AAA rating for the Sukuk Wakalah programme.

The refinancing of SIP’s loans with SD Bank also strengthened SD Bank’s balance sheet and will allow it to continue funding development projects in Sabah that are economically and socially meaningful and environmentally responsible so as to invigorate the State’s economy.

This entire exercise is a value-accretive acquisition and is not a bail-out. Importantly, the proceeds of the Sukuk Issuance that was received by SD bank amounting to RM700 million were wholly utilised to pay back SD Bank’s bondholders. The remainder amount of approximately RM200 million was utilised to redeem SIP’s outstanding loan with CIMB Bank Berhad. The success of this administrative effort resolved SIP's historical issues, provided substantial savings on interest costs. This therefore contributes positively to Sabah's overall development goals.

There are 20 accounts amounting to approximately RM3.3bil extended by SDBank to Peninsular Malaysia borrower since 2001, of which out of these 20 accounts, 19 accounts are non-performing amounting to approximately RM3.1bil.

“A total of RM3.2bil facilities to Peninsular Malaysia were approved during the period of 2001-2019. The balance of RM100mil were granted during the period of 2020 – May 2024, however these are for continuation of project(s) for existing Peninsular borrowers whose account with SDBank existed prior to 2020, with the ultimate aim of better recovery prospects.”

Based on the above data, it can be seen that no new loans were granted by SDBank to Peninsular Malaysia borrowers since the current State Government of Sabah took over. In fact, as part of the Transformation Plan for SDBank, a new Asset Management Company (“AMC”) Division has been setup since September 2023 to aggressively recover these loans and exit Peninsular Malaysia by end-2026 or earlier.

On the appointment of Datuk Seri Panglima Lim Haw Kuang as SDBank Chairman and SMJE Special Adviser; there is absolutely NO element of a conflict of interest in the appointment of Datuk Seri Panglima Lim Haw Kuang as the Chairman of SDBank and SMJE Special Adviser as the State Government owns both companies.

The State Government has been decisive in dealing with a difficult situation involving historic financial challenges faced by GLCs such as SIP and SD Bank. Datuk Seri Lim’s impeccable reputation, vast knowledge and professional experience in business and the oil and gas industry is to assist the State Government in handling the historic financial issues whilst growing the oil and gas business for the State.

SMJE operates under strict governance. The board is committed to transparency and accountability and is supported by very experienced independent directors from both the oil and gas and investment fields to ensure that SMJE is operated and managed professionally. All decisions are made in the best interests of SMJE and the State of Sabah.

The reckless spreading of disinformation in relation to this matter will carry consequences. The State Government is ready and prepared to defend its reputation and will not hesitate to take all necessary action to uphold the integrity and professionalism in this corporate exercise. Any attempt to cast negative allegations that are wholly untrue will be vigorously opposed.