Monday, December 21, 2015

Do Mahathir and Muhyiddin speak the truth?!

Financial Times,
FT Confidential Research


17 December 2015

After a scandal-ridden year, the support the Malaysian prime minister received at the recent Umno general assembly proves his position is secure following the resolution of 1MDB’s debt crisis.


1. The voluminous support Prime Minister Najib Razak enjoyed at the recent United Malays National Organisation (Umno) general assembly proves his position is secure, and we reaffirm our call that Mr Najib will remain in power and contest the 2018 general election.

2. In a sign of the control Mr Najib has over his party, influential former Umno leader and prime minister Dr Mahathir Mohamed, his most prominent critic, was forced to speak outside the assembly.

3. The resolution of the 1Malaysia Development Berhad (1MDB) debt crisis, following the sale of its energy assets to China General Nuclear Power, has played a vital role in cementing Mr Najib’s grip on power.


If there were still any doubts that Malaysian Prime Minister Najib Razak is set to hold onto power following a tumultuous year, then the reception he received at the recently concluded Umno general assembly put those concerns to bed once and for all.

We reaffirm our expectations that Mr Najib will lead Umno and its Barisan Nasional coalition into the next general election, which must be held by August 2018 (Asean Jul 29, Macro).


Mr Najib, the Umno president, ended the party convention looking stronger than he has for some time. His hold over the party is so complete that convention proceedings were entirely to his script. Umno deputy president Muhyiddin Yassin, for example, who was sacked as deputy prime minister in July for questioning Mr Najib’s leadership, was barred from giving a speech from the podium despite the fact that it is customary for the deputy to do so.

Mr Muhyiddin, together with former prime minister Mahathir Mohamed, was forced to speak outside the assembly, and resorted to distributing pamphlets during the convention. While Dr Mahathir, who is now 90, was successful at removing his successor Abdullah Badawi in 2009, he has used up a lot of his once hefty political capital and he has been unable to dislodge Mr Najib.

The prime minister, moreover, has significant financial resources to muster against his critics, making many Umno officials dependent on his generosity.

The clearest sign of Mr Najib’s robust influence over Umno was the manner in which his speech condemning Mr Muhyiddin and Dr Mahathir was received by the delegates. Branch representatives from all around the country applauded his words enthusiastically. There was no heckling and Umno’s high council toed the line.

Mr Najib still faces internal opposition in the states of Kedah, Negeri Sembilan and Johor, where pro-Muhyiddin support runs strong, but the anti-Najib lobby has run out of options. Umno is set to hold its party election in mid-2018, but we see no chance that Mr Najib will be ousted before the general election.


• The other key factor that has strengthened Mr Najib’s hand is the resolution to 1MDB’s debt crisis. In December, we spoke with 1MDB CEO Arul Kanda and are now convinced the worst of the fund’s troubles are over. This turnaround is due to two transactions:

• The sale of 1MDB’s energy assets to China General Nuclear Power for MYR9.8bn ($2.3bn) in cash. The Chinese state-owned enterprise will also assume MYR7.4bn in debt tied to these assets.

The transfer of about MYR16bn in debt to Abu Dhabi sovereign wealth fund International Petroleum Investment.
These two transactions alleviate the majority of 1MDB’s short-term debt concerns and significantly reduce the risk of default. We estimate the two transactions will reduce its total debt to about MYR19bn, from the MYR42bn listed in its 2014 annual accounts. With the resolution to the 1MDB crisis in sight, the anti-Najib lobby has lost its main source of ammunition against the prime minister.

There remain, of course, various corruption allegations against the fund and the prime minister. But Mr Najib has been careful to shore-up his control of the police and the Attorney General’s office and we would be stunned if any serious domestic charges levelled against him – or top 1MDB-linked officials – see the light of day.

No comments: