The financial structure of Malaysian state investment vehicle One Malaysia Development Berhad (1MDB) was unsustainable from the very start, according to a top government minister.
1MDB's design was an exception, not the norm, for Malaysian government-linked companies, Abdul Wahid Omar, Economic Planning Minister of Malaysia, told CNBC's"The Rundown" on Monday.
Rather than being listed like other firms, 1MBD, which was set up in 2009, was wholly owned by the Ministry of Finance, he said.
"The model that they took was low capitalization and huge borrowings, and I think as they found out, it wasn't a sustainable model. With that came debt realization, where the board has now embarked on a rationalization plan."
1MDB teetered on the verge of default in 2015 after racking up 42 billion ringgit ($11 billion) in debt in just five years. After missing various deadlines to repay loans to creditor banks, speculation was rife that the company wouldn't be able to service the rest of its obligations. Because the fund is wholly owned by the government, Prime Minister Najib Razak's administration is responsible in the case of a default. At the time, 1MDB was widely considered a serious liability risk for an economy whose finances were already under strained by the oil price crash. Crude oil-related income accounts for 30 percent of Malaysia's government revenues.
A debt rationalization program was launched in May 2015 to reduce 1MDB's burden by selling assets, and in November the beleaguered fund successfully sold its energy assets for $2.3 billion to a Chinese nuclear power supplier.
"The norm [in Malaysia] is successful transformation of the government-linked companies that we've embarked on," Abdul Wahid told CNBC.