Tuesday, September 08, 2015

After latest WSJ exposé, 1MDB must come clean over the US$3.5 billion bond arrangements and guarantee by IPIC

The Wall Street Journal (WSJ) once again raised another multi-billion ringgit question mark on where the money from 1Malaysia Development Bhd (1MDB) went.

When 1MDB issued 2 bonds worth US$1.75 billion each in May and October 2012 respectively, the loans were strangely guaranteed by International Petroleum Investment Corporation (IPIC), the sovereign wealth fund of Abu Dhabi.

As a condition, it was stated in the 1MDB 2013  and 2014  Financial Statements that 40% of the proceeds of the borrowings, or US$1.4 billion was to be kept as a “refundable deposit” as a collateral to the above guarantees.  This is on top of 1MDB granting up to “49% equity interest in Powertek Investment Holdings and 1MDB Energy (Langat) which held 1MDB’s power plant acquisitions from Tanjong Energy and Genting Sanyen.

However, as rightly pointed out by the Wall Street Journal, the US$1.4 billion does not appear anywhere in the financial statements of IPIC for the year ending 31 December 2013 and 2014, which was audited by Ernst & Young.


While the US$1.4 billion or RM4.5 billion was a non-current asset categorised as “other receivables, deposits and prepayments” in 1MDB’s accounts, there was no corresponding sum or classification appearing in the current or non-current liability in IPIC’s books.

The fact of the matter is that IPIC did disclose the US$3.5 billion guarantee it has provided 1MDB in the accounts.  They said, “the Company benefits from back-to-back guarantees and support from 1MDB and has secured for its Group the rights (“the Options Agreements”) to acquire up to 49% stake in the shares of two subsidiaries of 1MDB at a fixed price.”

Strangely however, it omitted to mention any collateral amounting to a very substantial US$1.4 billion deposited with IPIC or any of its subsidiaries.

The major discrepancy between 1MDB and IPIC’s financial statements leads to the conclusion that one of the accounts doesn’t tell the truth.

Unfortunately, the denial by 1MDB yesterday does not in any way, dispel the fact that US$1.4 billion is missing or is completely unaccounted for.  All that 1MDB stated was “the 1MDB audited financial statements clearly describe the amount and purpose of the payments, which for the avoidance of doubt, is structured as a deposit (i.e. a financial asset belonging to 1MDB and not an expense to 1MDB).”

1MDB further tried to disclaim the WSJ findings by leveraging on its audit firm, Deloitte’s reputation. Unfortunately, whether Deloitte or its previous auditors, KPMG, Malaysians have already witness the multiple lapses in 1MDB’s audit over the past 5 years which have resulted in the gargantuan RM42 billion scandal we see today.

Even if the payment of US$1.4 billion was indeed transferred to IPIC or its 98%-owned subsidiary Aabar Investments PJS, the question remains as to where the money, which belongs to 1MDB has gone, as it is not reflected in the IPIC financial statements.

Worse, it would not be the first time that 1MDB had recorded payments to a particular receipient, but actually transferred the funds to another party.  For example, it has been shown in various leaked documents that 1MDB made payments of US$700 million to Good Star Limited despite the payment being meant for Petrosaudi International Limited in 2009.

Therefore, to ensure to that 1MDB is not blamed or is not complicit in the disappearance of the US$1.4 billion, the company must provide full disclose of the terms of the Guarantee and Options Agreement with IPIC.  Any attempts to cover up the whereabouts of US$1.4 billion in question with a mere denial and empty assurances will only lead to greater suspicion among the public that the money has disappeared and is completely unaccounted for.

We would also like to call upon the Inspector-General of Police, Tan Sri Khalid Abu Bakar to demand an immediate investigation into this missing US$1.4 billion as reported by WSJ to ensure that those who may have embezzled to funds or committed criminal breach of trust are urgently brought to book.

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