Terengganu Investment Authority to be federal body

The Star 22/7/09

KUALA LUMPUR: The Terengganu Investment Authority (TIA) is being expanded to a federal entity called 1Malaysia Development Bhd (1MDB) with the aim of investing billions of ringgit in energy, real estate and hospitality sectors in the country, according to a statement from the Prime Minister’s office.

It was earlier proposed that the TIA would raise RM11bil for investments, of which RM5bil were to be government-guaranteed bonds while RM6bil were bonds to be collateralised by oil royalty payments to the state of Terengganu.

The King, who is also the Sultan of Terengganu, has consented to the arrangement. The new entity will be wholly-owned by Ministry of Finance Inc and will report directly to the Prime Minister. The Cabinet has also given its approval in principle.

The statement said more details would be released in the coming weeks.

Meanwhile, 1MDB will invest in collaboration with Abu Dhabi’s Mubadala Development Co, which has expressed interest in investing US$1bil in those sectors.

According to the statement, Prime Minister Datuk Seri Najib Tun Razak said he had fruitful talks with Abu Dhabi Crown Prince General Sheikh Mohamed Zayed Al-Nahyan during his one-day private visit to Abu Dhabi. In the meeting, Sheikh Mohamed Zayed, who is also chairman of Mubadala Development, a sovereign wealth fund wholly-owned by the Government of Abu Dhabi, expressed interest to invest US$1bil in energy, real estate and hospitality sectors across Malaysia via Mubadala, in partnership with a Malaysian sovereign wealth fund.

“To advance further and make this investment work, the Government has decided for TIA to be expanded into a federal-based sovereign wealth fund to be known as 1Malaysia Development Bhd for its benefits to be felt across Malaysia,’’ Najib said in the statement.

“1MDB is to drive sustainable, long-term economic development for Malaysia by forging strategic global partnerships and promoting foreign direct investment (FDI) for Malaysia to further enhance the multiplier effects for the Malaysian economy.”

1MDB, which will be run on the concept of matching FDIs, will be a fund that in essence looks to invest in companies that have equity value on a stock exchange but have a high mulitiplier effect on growth.

By becoming a sovereign wealth fund, 1MDB will have Malaysia as its priority instead of just one state, according to a source. It puts all states on equal footing at a time when there are a couple of states that are tinkering with the idea of establishing their own state-based investment funds. Establishing the 1MDB will also do away with the Government to provide further guarantees for other state-based funds. 1MDB would take over the cash already raised by TIA and allow Terengganu to continue using its oil royalities in its traditional manner, the source added.

Although 1MDB reports directly to the Prime Minister, the sovereign fund will still have an eight-member board of advisors and a five-member board of directors.

The directors would be from established statutory bodies and would allow those funds to participate in investments made by 1MDB if they chose to do so, the source said.