Putrajaya withdraws government guarantee for $500m loan from Penang to fund LRT project

KUALA LUMPUR (November 27): Putrajaya has decided not to provide a government guarantee for a US$500 million (RM2.04 billion) loan request by Penang to part-finance its light rail (LRT) project of RM9.5 billion.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the decision was in line with revised revenue and income projections for the country, as well as the government’s goal to restore the economy, following of the Covid-19 pandemic.

If the loan is granted, Tengku Zafrul said he would increase the federal government’s commitment to operating and development expenditures, as well as other off-budget projects supported by the government, such as power lines. MRT 1 and 2 (RM71 billion), LRT3 (RM17 0.7 billion), Pan Borneo Sarawak Expressway (RM13 billion) and East Coast Rail Link or ECRL (RM48.85 billion).

“Any new loan with a government guarantee should be scrutinized as much as possible, as it will increase government contingent liabilities. Uncontrolled increases in government contingent liabilities could increase fiscal risks and affect Malaysia’s credit rating from credit rating agencies. international ratings.

“Therefore, it is prudent for the government to limit the exposure of government guarantees by rearranging projects based on priority and debt repayment capacity,” Tengku Zafrul said in a written response from parliament dated November 25.

As of September 30, the total value of government guarantees stood at RM289.8 billion, or 20.1 percent of the country’s GDP, he said.

Tengku Zafrul was responding to a question from MP for Tanjong Chow Kon Yeow, who is also the Chief Minister of Penang, on whether the federal government would provide a government guarantee to Penang for loan applications to fund the LRT project. of State.

In November last year, Chow said the state government would create a special purpose vehicle (SPV) to issue bonds to raise funds to pay for the project.

At the time, he said that then Prime Minister Tun Dr Mahathir Mohamad assured that Putrajaya would provide sovereign guarantee for bonds issued through the state SPV to raise funds for the LRT project under the RM46 billion Penang Transport Master Plan (PTMP).

Chow added that Penang would not have been able to raise enough in the bond market without Putrajaya’s guarantee.

Tengku Zafrul, in the written response, said that the Ministry of Finance had received a letter from the Asian Development Bank (AfDB) dated January 25, 2019, regarding the Penang government’s request for an ADB loan for finance the LRT project.

He said that under AfDB financing terms, the loan will be charged at a higher repayment rate and financing cost, as the bank places Malaysia as an upper middle income country, which has a premium of higher maturity, with a spread of 0 to 50 bps, compared to 0-20 bps previously.

The minister said that if the government accepts the AfDB loan, the allocation should be provided for in the annual budget and the rolling plan of the Malaysian plan.

“The Penang state government needs to review projects based on priorities.

“Priority projects should then undergo further study by the Prime Minister’s Department’s Economic Planning Unit for consideration under the next Malaysian Plan rolling plan,” Tengku Zafrul said.

The LRT project, the first of its kind in the state, spans 19 stations on a 22km line connecting downtown George Town to Bayan Lepas to the south. The Bayan Lepas LRT line would be one of the priority projects to be delivered under the PTMP.

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