By Salahuddin Hisham
May 5, 2017
IT was early 2015.
Tun Dr Mahathir was hinting about joining the opposition with his criticisms of the government-owned outfit, 1Malaysia Development Berhad (1MDB). For a year , there was constant bombardment by Tony Pua, Rafizi Ramli, and London-based blog, Sarawak Report.
The flavour of the day was the alleged default by 1MDB on two banks – Maybank and Deutsche Bank. That railroaded the plan to list the company on Bursa Malaysia.
Arul Kanda had just been appointed the new Chief Executive Officer (CEO) to replace the resigned silent mouse acting as one.
We had tea over a weekend with an old boarding schoolmate at a posh hotel hidden away in Cyberjaya. He left a cushy corporate position and was then walking in the corridors of power. Thought we could get some insider take on 1MDB’s happenings.
After the usual pleasantries, and small talk, the 1MDB subject came up. Suddenly, his facial expression changed drastically. Before we could ask about the saucy grapevine stuff, he was already pressing on the need to put aside politics.
“Leave the politics for election. The wrongdoings will take years to investigate and litigate. In the meanwhile, the meter is running. The priority is to address the debt problem from the cashflow mismatch,” he said.
It was only learnt later from another accountant that is now walking in the corridors of power that some of the investments had “negative carry”. The urgency was to rationalise 1MDB’s assets and liabilities. Sell off some assets and investments to pare down the debt.
In fact, that was the first order of business for Arul Kanda.
Subsequently, the debt-for-asset swap with Abu Dhabi’s International Petroleum Investment Company PJSC (IPIC) involving US$3.5 billion bonds in June 2015 was announced. It was a less complicated and cheaper option in the settlement of the two bonds.
Then, Edra Energy was sold off for RM9.83 billion.
By late March 2016, Arul said in a television interview that 1MDB will pay off other remaining debts in the next two three weeks. 1MDB will have net cash position of RM2.3 billion.
It proved there were assets worth RM42 billion in the balance sheet that did not disappear as alleged by Dr Mahathir who later changed one big figure to another. But he still was unable to disprove the fully accounted items in the audited annual account.
The decision of the review and rationalization plan was not to assume any more new debts. The plan was to realise value by riding on the development of Tun Razak Exchange (TRX) and Bandar Malaysia.
It is one thing to plan it on paper but it is another to execute it. There will be the usual hiccups to any plan. To make it worthy to bring in a Malaysian banker from abroad, a problem cropped up.
The bomb came in April 2016 in the form of IPIC pulling out of the debt for asset swap. A rumour swirling in August 2015 became real. Everything was falling into place but this piece of the jigsaw puzzle suddenly could not tightly fit and fall out of the picture.
IPIC claimed the security deposit of US$1.37 billion plus other payments – as part IPIC guarantee of two 1MDB bond issues of US$1.75 billion – were diverted to a fake company.
IPIC subsidiary, Aabar Investment PJS was to receive the money but it went to a non-subsidiary with similar name – British Virgin Island company Aabar Investment PJS (Aabar BVI). The fraud was announced to the London Stock Exchange after it was highlighted by the auditors for few years.
So the dispute was IPIC did not receive and 1MDB insisted they paid.
As Minister of Finance II, Datuk Johari Ghani explained recently, they were confident of winning. There were too many legal precedents in 1MDB’s favour. In the court of law of any land, the instruction of an official, even if it is unlawful, is valid.
It was still not adversarial. Both parties decided to go for arbitration.
In the meanwhile, politicians – opposition and notwithstanding, within the ruling party – was on a blame game to drum up accusations against various parties from officials, associates, right up to Prime Minister Datuk Seri Najib Razak and his wife. There were casting doubts on everything coming out of official channel.
The propaganda game was to ask questions and pressure enforcement agencies to investigate. When they could not come up with anything, the game was to accuse the parties of collusion. There was even a lawsuit made against the police, th Attorney General, et al.
The public has every right to know about the wrongdoing and the perpetrators must be punished.
However it is not so simple. Firstly, the wrongdoings happened abroad, thus the question of jurisdiction arose. Secondly, there must be a smoking gun or Valachi paper confession or John Gotti tape to pin Najib as the Mafia godfather that made the order.
Again, to repeat the friend, it will take years but the problem needs an immediate solution!
The Malaysian public should prioritise between investigation to litigate the wrong doers and solution to solve immediate problems from getting worse and avoid a systematic failure. But matters were made more complicated by “economic sabotage” to derail deals.
The public was misguided with negative propaganda and pressure applied on concerned parties from playing their roles.
Certain media and more so, the international media colluded to frighten off parties interested in participating in the debt rationalization. The obvious sabotage was to frighten off investors for RAPID in Pengerang.
If the rationalisation failed and 1MDB lose billions, it serves the purpose of politicians – opposition and within government – to either topple the present government or ruling party leadership.
It is beyond us to comprehend the power game of politicians. However, it does not serve the nation’s interest to fail the rationalization and end up losing billions. Public money is at stake and for the sake of common interest, politics should be put in abeyance.
The dispute reached a “settlement” last week. 1MDB agreed to pay IPIC for US$1.2 billion and assume the repayment of principal and interest on the two bonds.
And, the investment fund units – claimed to contain no money, as it was allegedly diverted Petrosaudi investment – could be monetized for this purpose.
There are those that claimed the “settlement” is merely a “compromise” as there is still negotiation on the balance on the US$3.5 billion bond.
The rumour monger went about creating doubt over absence of Minister Johari in the negotiation team, claiming a balanced asset versus liabilities between 1MDB and IPIC as net liability of US$20 billion, et al.
The worse must be from a financial weekly that conjured up an issue that Ministry of Finance (MOF) refused to guarantee the bonds and it was only 1MDB guaranteeing the bond. Though no guarantee, MOF had given an undertaking to IPIC that 1MDB will pay. The undertaking was necessary as IPIC guarantee remained in force.
All actually ended well.
Johari explained that the major consideration was bilateral relation. The two G-to-G companies sought to find a win-win solution and help each other than to continue squabbling that benefited no party. By 1MDB willing to pay RM1.2 billion, it helped IPIC to resolve with their auditors and the London bourse.
One can argue endlessly over whether it is settlement or compromise, IPIC acknowledged receipt of Aabar BVI or weakened the US Department of Justice case. What mattered most was this dispute had a way forward to open for more prospects of trade and investment between Abu Dhabi and Malaysia.
To punish the wrongdoers, it can only be done by investigators, enforcement agencies, police, prosecutors and judges. The public is inadequate to comment and judge. Seldom is the case of public opinion turning out to be wrong because the basis was speculative or over-simplistic.
In the latest cancellation of sales of 60 per cent Bandar Malaysia to China Railway Corporation – Iskandar Waterfront Holdings Berhad, the public was duped into thinking the deal collapsed, 1MDB would go bust with this two in a row event, and what not.
When it was sold, the land was valued at RM12 billion. Bandar Malaysia is now 100 per cent 1MDB-owned again but the land value is now at RM20 billion, or even as high as RM26 billion. The IPIC negotiation on the US$3.5 billion bond is hardly anything to worry now.
Do we need a more convincing explanation that the cancellation favoured government-owned 1MDB and indirectly, rakyat Malaysia?
The solution now has lots of options to choose from!