P Gunasegaram (MKini)
12:28PM Apr 4, 2013
In a series of articles, KiniBiz has looked at 1Malaysia Development Bhd’s (1MDB) various deals and raised some real issues with respect to them, starting from their first RM5 billion bond issue to their joint-venture with PetroSaudi International Ltd, the subsequent withdrawal from that, further bond issues, acquisitions and proposals.
1MDB’s cloak-and-dagger style of operation with many unanswered questions and dubious dealings is very unbecoming of a sovereign fund which is supposed to to make strategic investments that will be of value to the country.
Following upon the articles that we have written, here are a list of 10 groups of questions over the various issues that have plagued the fund. They are arranged more or less in chronological order.
•Why was the first bond issue of RM5 billion done with so much secrecy? Was is it mispriced? Why was it necessary to have such a long tenure of 30 years? Who got the bonds? Why was it not offered to our institutions like the Employees Provident Fund (EPF)?
•The joint-venture with PetroSaudi International Ltd. How come PetroSaudi put in an oil reserve in the Caspian Sea as part of the deal? Wasn’t 1MDB’s strategic direction to get in investments into Malaysia? What was the JV supposed to do? Who is PetroSaudi?
•On the exit from the JV with PetroSaudi – Why accept debt papers from PetroSaudi as payment? Didn’t PetroSaudi have enough cash? Did it not effectively mean that 1MDB had basically raised funds only to fund PetroSaudi?
•Why increase the debt to PetroSaudi even more to the extent of RM5.71 billion – more than the RM4.4 billion raised via the bond? Isn’t it true that all of the money from the first bond and more went to PetroSaudi, meaning a government-guaranteed bond and more was simply on-lent to the company? Why? What kind of strategic merit was there is this deal?
•The second bond of US$1.75 billion was made at very favourable terms to buyers and described as a mysterious placement. Why the secrecy? Why was it considerably mispriced to the advantage of buyers? Who got the bonds? Again, why were government institutions such as EPF excluded? Why did a unit of the Abu Dhabi government guarantee this?
•Is there a plan to issue another US$3 billion bond as reported by Bloomberg? What are the terms? Will local institutions partake? What is 1MDB doing to ensure that the bonds are priced at favourable terms to 1MDB? What is 1MDB going to do with the funds raised?
•Why was there such a hurry to buy power assets? Is it to get some cash flow in? Why the overpayment? T Ananda Krishnan’s unit made a gain of an estimated RM2 billion from the sale of his assets while Genting Bhd made a gain of an incredible RM1.9 billion from the sale of its power assets to 1MDB for RM2.3 billion. Besides, Genting’s concession ends in February 2016. What justification is there to pay that much under the circumstances?
•Jimah Energy Ventures Holdings – is there a plan to acquire this power asset for RM1.7 billion as reported? The reported price looks way too high for a company which is still bleeding red ink at the moment. What is the justification?
•Why bring in foreign partners for the two main real estate developments – the RM27 billion Tun Razak Exchange (TRX) and the RM20 billion Sungai Besi airport land? This was on land obtained cheaply from the government. Why pass on benefits to a third party? Couldn’t 1MDB plan the development itself with reputable consultants? Isn’t there a worry that there will be oversupply, especially from the TRX Development?
•Who is directly responsible for this series of highly questionable decisions by 1MDB? Are the 1MDB board and its advisory panel all fully aware of what is going on? If they are, why have they agreed to these? What measures are they putting in place to to ensure that 1MDB’s interests are protected and bring to account anyone responsible for decisions detrimental to 1MDB?
If government companies and sovereign funds are to set an example for standards of corporate governance, transparency and accountability, it is very clear that 1MDB has failed on all accounts.
We can only hope that those responsible for these very questionable deals will at least be brought to account and all misdeeds corrected as much as it is possible to do so. But it is highly unlikely that all of it can be corrected. How do you recover billions in bond mispricing, for instance?
The evidence is there of gross wrongdoing at 1MDB for everyone to see. If those responsible are not brought to book, it will just encourage so much more misdeeds in future. And there is a need to ensure that no government body ever becomes as bad as 1MDB.
If nothing – no answers, no action – is forthcoming, it will be sad indeed for governance, transparency and accountability in Malaysia and demonstrate yet again a blatant disregard for honest, decent, competent and ethical behaviour of those entrusted with billions of ringgit in public money.
P GUNASEGARAM is founding editor of KiniBiz.