1MDB was flawed from the start, Economic Planning Minister admits

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 capitalisation and huge borrowings, and I think as they found out, it wasn't a sustainable model. With that came debt realisation, where the board has now embarked on a rationalisation plan."

1MDB teetered on the verge of default in 2015 after racking up 42 billion ringgit (US$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 per cent of Malaysia's government revenues.