Over the past few months, see the Prime Minister and his cheerleading cabinet as well as 1MDB President Arul Kanda were bragging about how successful the 1MDB rationalisation exercise was.
Arul Kanda when responding to media enquiry if he was leaving 1MDB, no rx said “What I said was that my work was done with the successful rationalisation” on 31 March 2016.
Yesterday’s announcement by Interntional Petroleum Investment Corporation (IPIC) which accused 1MDB of failing to honour the terms of the US$4.7 billion debt-asset swap deal proved their boasts to be ludicrously premature. This follows confirmation that US$3.51 billion of 1MDB’s funds have be siphoned to a fraudulent “Aabar Investment PJS Limited” which was established in the British Virgin Islands (BVI).
All Arul Kanda has achieved to date is to sell Edra Global at RM9.93 billion which represents a loss of RM2.27 billion as the assets were acquired for RM12.1 billion. The loss widens further if one were to take into account the dividends received versus the interest paid on loans taken for the purposes of the acquisition.
Even for the sale of 60% of Bandar Malaysia, treatment only a refundable deposit of RM741 million is paid. The deal is only expected to be completed by June 2016. However, there is no assurance that all the terms of the deal can be met, including the purchasers ability to raise the necessary funding to pay RM7.41 billion for the 60% stake.
However, the most critical anchor to the entire rationalisation exercise – the debt-asset swap agreement with IPIC involving up to US$4.7 billion is by far the biggest component in the rationalisation plan. The US$4.7 billion included US$3.5 billion of 2012 bonds, US$1 billion of IPIC advance provided in June 2015 and up to approximately US$200 million of interest payments during the course of the year.
It’s failure not only now places 1MDB itself at risk, but now involves a bailout by the Ministry of Finance (MOF).
As IPIC has clearly announced to the London Stock Exchange, “1MDB and MOF continue to be bound by their respective obligations under the terms of the Binding Term Sheet, including their continued indemnification of IPIC and Aabar for any non-performance under the Binding Term Sheet and in relation to any claims which may be made against IPIC pursuant to the guarantees entered into by IPIC in respect of certain 1MDB group bond issuances.”
This clearly means that should 1MDB fail to repay up to US$4.7 billion to IPIC and/or the bondholders, then the MOF has to fork out the difference based on the indemnity provided by the MOF in the debt asset swap agreement.
When I had pointed out this sleight of hand by 1MDB and MOF in June last year, 1MDB had angrily refuted my warnings and concerns.
“…it is irresponsible of Tony Pua to suggest that the recent binding term sheet between 1MDB and IPIC, a commercial transaction, has resulted in further guarantee obligations by the government of Malaysia,” 1MDB protested.
It appears that 1MDB could only lie about the hidden guarantee by MOF for 10 months. We now know clearly that with the spectacular failure of the debt-asset swap deal, the Malaysian tax-payers will be called upon to foot 1MDB’s bills.
The Parliamentary Public Accounts Committee has already established the fact that the Government is obligated via explicit and implicit guarantees provided for US$3.15bn and RM5.8 billion of 1MDB borrowings or approximately RM18 billion in total.
Now with the unravelling of the IPIC deal, the MOF is now exposed to another US$4.7 billion of 1MDB liabilities or approximately RM18.5 billion. Hence the rakyat’s exposure to the shenanigans in 1MDB amounts to an epic RM36.6 billion.
Dato’ Seri Najib Razak can no longer escape the need to explain the spectacular disaster that is 1MDB which has happened under his watch. He must explain how is 1MDB going to fund the immediate repayment of US$1.1 billion demanded by IPIC.
He must also explain why the Auditor-General has been unable to confirm US$7 billion of 1MDB’s transactions, cash and assets overseas due to the complete lack of cooperation from 1MDB. Or else, what is the Prime Minister really hiding?