Will we be left with a skeletal Proton, stripped of its assets?

The Second Finance Minister, Dato’ Seri Johari Abdul Ghani announced that the Ministry of Finance (MoF) agreed to pay RM1.1 billion in “research grant” and drawdown the final instalment of RM250 million of its RM1.5 billion soft loan to Proton.

However, as I wrote yesterday, I found it inexplicable that Geely needed only to pay RM170 million for a 49.9% stake in Proton which is about to receive the above RM1.35 billion in cash from the MoF.

Worse, despite the high profile acquisition signing by the respective parties, Geely makes no mention at all on its future plans for Proton, particularly if it plans to invest more funds into Proton to, in the words of Dato’ Seri Johari, “bring back the glory days”.

In fact, when you study the transaction in detail, Malaysians are concerned that the deal is essentially an asset stripping exercise with Proton’s skeletal remains to be returned to the Malaysian government in time to come.

Under the deal, Proton will dispose of it’s entire stake in UK-based Lotus car manufacturer to a Geely-led joint venture company for GBP100 million or approximately RM556 million.  It should be remembered that Proton had paid RM1.96 billion to acquire Lotus in 1996.  From the above transaction details, it is obvious that Geely is more interested in Lotus which it will become the majority shareholder, as opposed to Proton.

In addition, we have also discovered that as part of the disposal exercise, the valuable landbank previously held by Proton worth an estimated RM540 million in book value will also be fully-transferred to DRB-Hicom, who acquired Proton from Khazanah Nasional in 2012.  Property analysts interviewed by the Edge Weekly suggested that the market value for these assets are significantly higher.

The problem is, despite the above assets being stripped from Proton, the Government’s RM1.5 billion soft loan to Proton will remain outstanding.

Under all sensible circumstances, with Geely’s acquisition of Lotus and the transfer of property assets to DRB-Hicom, the Government’s soft loan must be repaid in full.  At the very least, the “new” joint-shareholders of Proton – DRB Hicom and Geely must provide full corporate guarantees for the loan in the event of default by Proton.

However, we have since discovered that in the event of default, the soft loan will be converted into 2.1 billion new shares in Proton, which constitutes at least 65% of the company!

In other words, if Geely and DRB-Hicom chooses not to continue investing and sustaining Proton, and as a result, the latter fails to repay the Government’s RM1.5 billion soft loan, then the bleeding company will once again be owned by the Government!

The clear winners in this outcome are Geely which got what it wanted out of the transaction – the Lotus car and brand; and DRB-Hicom which got all the valuable property assets.  In the event that Proton fails to recover, then the loss-making baby will be inevitably returned to the unwitting arms of the Malaysian tax-payers.

If Proton for whatever reason becomes very profitable, the private companies will keep all the profit. However, if Proton, in the plausible scenario of continuing to make hundreds of millions of losses annually, the losses will be ultimately be “socialised” by the Malaysian Government.

The Ministry of Finance must answer as to why the Government has provided two private companies – one local and one foreign, such a fantastic financial failsafe.  Its heads, Geely and DRB-Hicom wins; and tails, the rakyat loses.

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Did the Malaysian Government effectively pay Geely to acquire Proton?

After more than a decade of tie-up talks with car manufacturers around the world, including repeated on-off talks with Volkswagen, Proton finally tied the knot with China’s rising upstart Geely, which took over the Swedish Volvo in 2010.

The debate since has focused on two issues – first, the “loss” of a “national car” and second, the Government relieved of all future obligations to finance the company which has bled tax-payers for more than 20 years.

The issue of a “national” car has always been one of misplaced ego and pride.  A "national" car doesn't add value to the country's economy if it doesn't create sufficient jobs and a competitive industry.

On the other hand, if every foreign vehicle manufacturer wants to set up factory in Malaysia, it'll create thousands of jobs, facilitate knowledge and technology transfer, create a highly competitive industry and ultimately provide a big boost to our wealth and economy, even if the so-called brands are not "national".

Hence the yardstick by which we must measure the Geely acquisition must be by it’s plans for Proton.  The markets are still clueless as to how much investment Geely will bring into Proton other than the meagre cost of acquiring DRB-Hicom’s 49.9% stake in Proton for RM170 million.

If Geely has no plans to further invest in strengthening Proton’s technical capacity, then the latter will pretty much fade into the oblivion.  We are not even sure if Geely intends to fully utilise the oft-cited “excess capacity” in Proton to produce more cars, regardless of whether they are branded Proton, Geely or Volvo.

The Second Finance Minister, Datuk Seri Johari Abdul Ghani who boasted that the Geely acquisition will bring back Proton’s “glory days”, further adding that there will be no more subsidies for Proton after the final payment of RM1.1 billion.

In addition, the Ministry of Finance will disburse the final RM250 million from the RM1.5 billion soft loan provided to Proton last year.

For those that did the simple mathematics, effectively, Geely is paying only RM170 million to acquire a 49% stake in a company which the Government is about to inject RM1.35 billion (RM1.1bn + RM250mil) of cash!

As highlighted above, to date, there has been no mention at all of any commitment or additional investment by Geely into Proton in order to turn around the beleagured “national” car maker.

Hence, despite the fact that Proton is already a private company sold to DRB-Hicom in 2012, it looks like the Government is effectively bailing out DRB-Hicom, a company owned by Syed Mokhtar Al-Bukhari, by indirectly “paying” Geely to make it worthwhile for the latter to acquire 49% of Proton.

The action by the Ministry of Finance is completely inexplicable, making absolutely no financial sense.  What is the point of privatising Proton by selling its entire stake to DRB Hicom when at the end of the day, the Government continues to “finance” the company’s sustenance?

This further raises the question – if Geely fails to resuscitate Proton and gives up on the company, will the Government step in again to keep Proton on life support?

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The MACC will never shake its politically tainted image unless it starts taking action against power abuse and corruption in relation to 1MDB and SRC International

The Malaysian Anti-Corruption Commission (MACC) has been putting up a brave front in making dozens of arrests of corrupt government officials from state utilities and zakat officials to senior police officers around the country.

While none of the key arrests to date have resulted in convictions in the court of law, the relatively aggressive effort in fighting corruption is to be applauded.

However, all its efforts have failed to redeem the commission’s tarnished and tainted image of being a political tool of the Najib administration, and for its failure in touching anything remotely connected to the two largest scandals afflicting Malaysia today – 1MDB and SRC International.

In comparison, over the period of a year, the Singapore authorities have prosecuted and secured guilty verdicts against various parties involved in facilitating the laundering of illegally sourced funds passing through the Singapore banking system.

The most recent conviction was against a remisier who provided a S$3,000 inducement to a financial analyst to produce a favourable valuation report for a then proposed US$2.4 billion acquisition of Petrosaudi Oil Services Limited (PSOSL) by 1MDB.

In Malaysia, the Auditor-General and Public Accounts Committee (PAC) have already flagged the transaction as highly irregular and failed all tests of corporate goverance and due diligence – with the management both misleading the 1MDB Board of Directors, as well as ignoring the instructions of the latter.

Why is it that while the Singapore authorities have not only completed the prosecution and conviction of those found guilty of being involved in the above fraudulent transaction, but in Malaysia, the MACC isn’t even remotely close to completing its investigations.  In fact, the MACC Chief Commissioner has consistently refused to confirm if there are any investigations on the parties involved in the 1MDB scandal which have burdened the Malaysian tax-payers with RM42 billion of financial liabilities.

As a result, regardless of how many other arrests the MACC made against police officers and other agencies, the rakyat will forever view MACC as a biased agency which will only take action against the fish fries and not the monster sharks.  This is especially since it is now public knowledge, undenied by the Prime Minister, Dato’ Seri Najib Razak himself, that at least US$731 million originating from 1MDB and RM69 million from SRC International Sdn Bhd found its way to his personal bank account with Ambank Bhd.

The Chief Commissioner, Datuk Dzulkifli Ahmad had tried to brush off criticisms of MACC’s tardiness by claiming that actions against politicians are delayed because they didn’t want the issue to be made used of by politicians for the purposes of campaigning.

"There is no issue of 'pilih kasih' (favouritism), it's about timing. If we take action straightaway, then that's favouritism," he told reporters in Kuala Lumpur today.

Datuk Dzulkifli could not be more misguided in his rational for not completing its investigations on 1MDB and SRC International, or prosecuting the politicians involved.  In fact, his failure to take action against corrupt politicians on a timely basis is itself an act of ‘favouritism’.

It is not the business of MACC to interfere with politics or political campaigning. The business of MACC is to prosecute the corrupt, regardless of whether the person is the Prime Minister or a lowly civil servant.  The constitution provides for the fact that all Malaysians are equal under the eyes of the law.

Secondly, Datuk Dzulkifli appears to insinuate that political campaigning against corrupt officials is a despicable and dishonourable activity.  The MACC Chief could not be more wrong. Campaigning against the politically corrupt officials is central and integral to the concept of electoral democracy.

The rakyat must have the opportunity to hear and understand all the relevant facts, so that they are able to make informed choices during the General Election.

So, Datuk Dzulkifli, we call upon you to use the powers vested upon MACC to take immediate and uncompromised actions against political figures who are involved in abuse of power, the misappropriation of state funds as well as corruption.  It will go a long way towards redeeming the severely damaged image of MACC and demonstrating that you really act without fear or favour.

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Did Proton just get asset-stripped with the tax-payers ultimately carrying the overgrown baby once again?

Over the past 2 weeks, the Prime Minister and the Ministry of Finance have been making a whole series of announcements, varying them along the way.

First, the Ministry of Finance surprised the markets with the sudden temination of the sale of 60% interest in Bandar Malaysia to the consortium led by Iskandar Waterfront Holdings (IWH) for RM7.41 billion.  According to MoF, IWH and it’s partner, China Rail Engineering Corporation (CREC) failed to fulfil their financial obligations under the agreement despite more than 10 extensions granted.

However, despite the purported breach of contract by the IWH consortium which should have led to an event of default requiring the forfeit of the 10% deposit paid, the MoF decided to refund the RM741 million deposit paid in full.

Then the markets were fed “rumours” from official sources that the agreement was terminated as the Prime Minister, Dato’ Seri Najib Razak was expected to sign and agree with China’s Dalian Wanda, owned by China’s richest man, Wang Jianlin for Bandar Malaysia.  The expected agreement was purportedly worth more than US$8 billion.

However, during the Beijing meet between Dato’ Seri Najib and Wang on 13th May, the latter offered nothing other than polite, diplomatic and measured praise for Malaysia.  The Prime Minister had to return home empty-handed, not even with a perfunctory, non-committal Memorandum of Understanding (MoU) as is typically signed during such high-profile events.

Suddenly with the embarrassing failure by the Prime Minister to secure any deal with Wanda, The Star reported on 15th May that according to a government source in Beijing, “Chinese Prime Minister Li Keqiang told Najib that China hopes the deal on Bandar Malaysia stays unchanged. Najib may have to take the Chinese wishes into consideration.”

It was further reported that Najib said then that the formula for equity stakes in Bandar Malaysia would be changed and that foreign participants would not be just Dalian Wanda Group alone.  “We will take into account the position of CREC and other groups that are interested, including Wanda,” he said.

However, yesterday, back in Malaysia, the Prime Minister appeared to have changed his tune again. He said, contrary to some erroneous reports, the termination of the previous agreement with IWH CREC Sdn Bhd is final, and will not be reinstated.

"The selection process for the master developer will involve very strict criteria, including a proven track record, speed of delivery, content creation, and the financial capability to deliver a project of this scale. The highest possible value will be sought to ensure the best deal for the taxpayer is obtained," he added.

It appears very clear that the Bandar Malaysia development lacked any direction, and Dato’ Seri Najib Razak is making up plans has he goes along.  And as policies got varied by the day, the market reaction can only be best encapsulated by the wild gyrations of the Iskandar Waterfront City Bhd over the past two weeks.

Such ad-hoc policy making pronouncements are completely detrimental to the MoF’s objective of snaring a new investor for the project.  Instead, potential buyers will only be frightened off by the policy flip-flops which can take place in Malaysia, providing them with little confidence and certainty over their investment in the country.

We call upon the Ministry of Finance to deliberate in-depth the developments over the past 2 weeks carefully before making any more vacuous decision announcements.  Dato’ Seri Najib Razak must not forget the fact that the original sale to the IWH consortium was finalised only after a 6-month global hunt for investors by C H Williams, Talhar & Wong, the 1MDB-appointed real estate brokers, in 2015.

The offer by IWH consortium, despite their apparent inability to fulfil their financial obligations was the then highest offer on the table.  Instead of making empty promises of selling Bandar Malaysia at substantially higher prices which may in turn cripple the viability of the proposed economically beneficial projects, the MoF must study in-depth the types of development in Bandar Malaysia which will generate the most economic multiplier effects for the country, with an emphasis of supporting competent local developers and businesses.

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Why is Dato’ Seri Najib Razak making up the plans for Bandar Malaysia as he goes along?

Over the past 2 weeks, the Prime Minister and the Ministry of Finance have been making a whole series of announcements, varying them along the way.

First, the Ministry of Finance surprised the markets with the sudden temination of the sale of 60% interest in Bandar Malaysia to the consortium led by Iskandar Waterfront Holdings (IWH) for RM7.41 billion.  According to MoF, IWH and it’s partner, China Rail Engineering Corporation (CREC) failed to fulfil their financial obligations under the agreement despite more than 10 extensions granted.

However, despite the purported breach of contract by the IWH consortium which should have led to an event of default requiring the forfeit of the 10% deposit paid, the MoF decided to refund the RM741 million deposit paid in full.

Then the markets were fed “rumours” from official sources that the agreement was terminated as the Prime Minister, Dato’ Seri Najib Razak was expected to sign an agree with China’s Dalian Wanda, owned by China’s richest man, Wang Jianlin for Bandar Malaysia.  The expected agreement was purportedly worth more than US$8 billion.

However, during the Beijing meet between Dato’ Seri Najib and Wang on 13th May, the latter offered nothing other than polite, diplomatic and measured praise for Malaysia.  The Prime Minister had to return home empty-handed, not even with a perfunctory, non-committal Memorandum of Understanding (MoU) as is typically signed during such high-profile events.

Suddenly with the embarrassing failure by the Prime Minister to secure any deal with Wanda, The Star reported on 15th May that according to a government source in Beijing, “Chinese Prime Minister Li Keqiang told Najib that China hopes the deal on Bandar Malaysia stays unchanged. Najib may have to take the Chinese wishes into consideration.”

It was further reported that Najib said then that the formula for equity stakes in Bandar Malaysia would be changed and that foreign participants would not be just Dalian Wanda Group alone.  “We will take into account the position of CREC and other groups that are interested, including Wanda,” he said.

However, yesterday, back in Malaysia, the Prime Minister appeared to have changed his tune again. He said, contrary to some erroneous reports, the termination of the previous agreement with IWH CREC Sdn Bhd is final, and will not be reinstated.

"The selection process for the master developer will involve very strict criteria, including a proven track record, speed of delivery, content creation, and the financial capability to deliver a project of this scale. The highest possible value will be sought to ensure the best deal for the taxpayer is obtained," he added.

It appears very clear that the Bandar Malaysia development lacked any direction, and Dato’ Seri Najib Razak is making up plans has he goes along.  And as policies got varied by the day, the market reaction can only be best encapsulated by the wild gyrations of the Iskandar Waterfront City Bhd over the past two weeks.

Such ad-hoc policy making pronouncements are completely detrimental to the MoF’s objective of snaring a new investor for the project.  Instead, potential buyers will only be frightened off by the policy flip-flops which can take place in Malaysia, providing them with little confidence and certainty over their investment in the country.

We call upon the Ministry of Finance to deliberate in-depth the developments over the past 2 weeks carefully before making any more vacuous decision announcements.  Dato’ Seri Najib Razak must not forget the fact that the original sale to the IWH consortium was finalised only after a 6-month global hunt for investors by C H Williams, Talhar & Wong, the 1MDB-appointed real estate brokers, in 2015.

The offer by IWH consortium, despite their apparent inability to fulfil their financial obligations was the then highest offer on the table.  Instead of making empty promises of selling Bandar Malaysia at substantially higher prices which may in turn cripple the viability of the proposed economically beneficial projects, the MoF must study in-depth the types of development in Bandar Malaysia which will generate the most economic multiplier effects for the country, with an emphasis of supporting competent local developers and businesses.

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Malaysia has some of the top property development companies in the world – why is Dato’ Seri Najib Razak practically begging for Chinese developers to develop Bandar Malaysia?

The failure by Dato’ Seri Najib Razak to secure even any form of non-binding commitment from Dalian Wanda to acquire Bandar Malaysia brings the Ministry of Finance plans for the 495 acres of prime land back to square one.

The Prime Minister needs perhaps a lesson in sales strategy.  An evidently desperate salesman trying to sell his family heirlooms is never going to succeed in closing a deal at inflated prices.  While these Chinese developers may be cash rich, they are not stupid.

They know that the previous buyer – the Iskandar Waterfront Holdings (IWH) Consortium who had put it the purportedly best bid in December 2015 could not pay up the full RM7.41 billion it agreed to pay for a 60% stake in Bandar Malaysia.

And if Wanda knew that, why would they be so silly as to offer more than what was previously already the best bid Bandar Malaysia could solicit?  What can Bandar Malaysia offer – other than being a sizeable piece of prime land in the middle of Kuala Lumpur, that would make it such an ‘irresistable buy’ for a foreign Chinese developer?

The answer which isn’t music to Dato’ Seri Najib Razak’s ears, is really “not much”.  Hence the only reason why these Chinese developers would acquire Bandar Malaysia is if, they got a bargain price or if they are able to extract all sorts of financial incentives and tax exemptions from the Malaysian government to make their venture worth the while.

This then begs the question – what makes these Chinese developers so special that we should bend over backwards to grant them exclusive financial incentives and generous tax exemptions?

We are not talking about Huawei setting up a reseach and design centre in Malaysia. Or for that matter setting up a manufacturing plant to produce world-class electronic gadgets.  We would bend over backwards for Huawei in this case because we have no expertise in the sector.

On the other hand, our experience with Chinese developers have left a bad taste in the mouth.  They have not only single-handedly placed the Johor property development industry on life-support, they have brought with them their entire supply chain of contractors and sub-contractors from China.

Worse, investigations by Malaysiakini recently have proven the Chinese construction projects to have engaged thousands of illegal workers from China.  They have demonstrated utter contempt for our laws.

Therefore, as the Ministry of Finance re-think the entire Bandar Malaysia development – the most important question to ask is, “why can’t Malaysian developers do the job?”

For example, a consortium comprising of SP Setia, Sime Darby and EPF stunned the global property markets with a winning bid for the London icon, Battersea Power Station in 2012.  It is now a project with gross development value in excess of GBP8 billion and have won the prestigious London “Developer of the Year Award” in 2015.  Last year, the development also won the London “Deal of the Year Award” after successfully snagging Apple as the largest office tenant which will take up 5,000 sq ft of space.

Malaysian developers are also regular winners at the International Real Estate Federation (FIABCI) World Prix D’Excellence Awards.  They have included Sunway, IJM, YTL, UEM-Sunrise and many more.  These developers are now expanding their portfolios not only in the regional countries such as Vietnam, China and Indonesia, but also to developed cities such London and Melbourne.

Why are our own developers not given a chance?  Even if in the event that there is no one developer who is able to digest the entire 495 acres of land in Bandar Malaysia – the Ministry of Finance could always parcel out the development into multiple parts and phases. This will provide the perfect opportunity for the local players to compete to create the best value and designs for the respective carved segments.

The projects will be a massive boost to our local property development industry, stimulate demand for local construction and related-services and most importantly provide thousands of new job opportunities for ordinary Malaysians.

Sometimes we think too hard, travel far and wide in the pursuit for solutions, when really, the
answer is right in front of our very eyes.

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After more than a week of hyped-up brouhaha, Dato’ Seri Najib Razak’s magic Wanda failed to cast its spell

For more than a week after the Ministry of Finance the sale of a 60% Bandar Malaysia interest to a consortium led by Iskandar Waterfront Holdings (IWH) collapsed, the Prime Minister’s Department media strategists worked overtime to limit the damage caused by the negative publicity.

They fed unnamed and uncorroborated stories to key correspondents with news leaks that the real reason why the IWH deal will terminated was because a much bigger deal was to be signed.

It was The Star who first picked up the “rumour” quoting “some sources” saying “that entity could be Dalian Wanda Group Co Ltd, a Chinese multinational conglomerate corporation and the world’s biggest private property developer” on 6 May 2017.

But it was The Singapore Straits Times who was the first to flesh out the story on 9 May 2017 and created an unreal buzz that Dato’ Seri Najib Razak has all but tied up the deal with Dalian Wanda, hence the urgency to dump IWH.

The Singapore Straits Times wrote that “Government officials and financial executives close to the situation told The Straits Times that negotiations with the Dalian Wanda Group to take a central role as master developer have reached an advanced stage…”

“Malaysian government officials noted that the new deal would be substantially higher than the previous RM12.3 billion valuation tag for the entire project.  According to financial executives familiar with ongoing talks, Wanda has proposed to use half of the development for tourism and entertainment-related ventures valued at roughly US$8 billion,” the Singapore paper added.

All media outlets, online and print, including The Star, quoted the Singapore report with expectations of an agreement to be signed with Wanda in Beijing this week hitting a feverish pitch.

However, with expectations set so high, the stage was set for a spectacular flop.  The press conference announcement yesterday afternoon between Dato’ Seri Najib Razak and Wanda’s Chairman Wang Jianlin in Beijing turned up a damp squib.

Despite the Prime Minister’s over-the-top praise for Wanda, Wang’s brief response was measured in pure diplomatic speak.

"Today, I also talked to the Prime Minister about this project. It is a large project worth over US$10 billion and we have not finalised a deal yet.  We are very optimistic about Malaysia's investment and commercial climate.  We are willing and ready to contribute our share to Malaysia's economic development and to create the one and only unique commercial centre in Malaysia," he said.

Not even a face-saving, typically broadly-worded, non-committal Memorandum of Understanding was signed.

The reason is likely quite simple. Dalian Wanda might be one of the richest private companies in China, making them an attractive target to sell perhaps, a grossly overpriced piece of real estate. But in all likelihood, Dalian Wanda became one of the most profitable companies in the world precisely because it doesn’t pay over-the-top prices of real estate – even if it is indeed prime real estate, especially if the seller is way more desperate than Wanda is interested.

With the IWH deal dead and no super-wealthy knight-in-shining-armour in sight, the Ministry of Finance needs to go back to the drawing board on its plans for Bandar Malaysia.  The priority must not be to sell the land at the highest possible price with the intended purpose for the funds to bailout 1MDB.  The priority to the land must be a economically sustainable development which will not only empower the Malaysian business community, but also in turn create meaningful job opportunities for ordinary Malaysians.

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The Ministry of Finance confirmed our worst fears – that tax-payers continue to bear the cost of 1MDB’s multi-billion ringgit losses

Both The Malaysian Insight yesterday and the Edge Financial Daily today confirmed that the Ministry of Finance (MoF) has fully refunded the RM741 million deposit paid by the Iskandar Waterfront Holdings (IWH) consortium for the latter’s 60% acquisition of Bandar Malaysia.

This follows the official announcement last week by TRX City Sdn Bhd, now a wholly-owned subsidiary of MoF, that the above sale was been terminated due to the failure of the consortium to meet their financial obligations despite a dozen extensions having been granted.

Malaysians can only weep in despair as the refund marks another milestone in the continued bailout of the debt-stricken scandal-ridden 1MDB.

When the above acquisition agreement was first signed in December 2015, it was the ‘final’ chapter of the proposed 1MDB rationalisation exercise. The sale of Bandar Malaysia, then a wholly-owned subsidiary of 1MDB, was crucial to ease 1MDB’s immediate debt problems.

Hence the 10% deposit or RM741 million paid by the IWH consortium went a long way towards paying down 1MDB’s debt service obligations.

Interestingly, and most coincidentally from a timing perspective, 1MDB transferred the ownership of TRX City, which in turn owns Bandar Malaysia, to the MoF on 31 March 2017.  This was barely 5 weeks before the above ‘surprise’ termination was announced and deposit refunded.

The question now isn’t only why the MoF refunded the deposit, at the further expense of the tax-payers, instead of 1MDB who were the recipients of the RM741 million.

The more important question now is whether the entire takeover of TRX City and Bandar Malaysia by the MoF was a pre-meditated exercise designed to relieve 1MDB of any financial obligations with respect to the then impending termination.

In other words, the timing of the transactions raises the suspicion that MoF took over Bandar Malaysia with a specific intent to bailout 1MDB with tax-payers’ funds.

The re-payment of the deposit is on top of the RM2.4 billion of 1MDB sukuk secured with the Bandar Malaysia land which the MoF has unconditionally assumed.  This was despite, as verified by the Auditor-General, not a single sen of the above sukuk borrowing was utilised for the Bandar Malaysia project.  The funds were instead siphoned for 1MDB’s “other corporate purposes”.

In addition, the MoF will also have to bear the burden of the making payments to Perbadanan Pewira Hartanah Malaysia, a wholly-owned subsidiary of the Armed Forces Fund (LTAT) which received a RM2.7 billion contract to relocate the Air Force Military Base, of which nearly RM2 billion was still outstanding.

When the 495 acres of prime land was given to 1MDB in 2012, the MoF received nothing in return.  However, when it was ultimately returned to MoF, Malaysians are now burdened with combined liabilities of approximately RM5.1 billion.

Hence, Dato’ Seri Najib Razak must explain why even more billions of tax-payers’ funds are being used to bailout his brainchild, 1MDB. More importantly, the Finance and Prime Minister must abide by his brother’s advice, Dato’ Seri Nazir Razak, that the Government must be more honest and transparent with 1MDB, particularly in letting Malaysians know how many more billions are being earmarked to bailout the 1MDB disaster in the months and years to come.

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Who made the decision to terminate the agreement for the sale of Bandar Malaysia to the consortium led by Iskandar Waterfront Holdings?

The new season of the blockbuster 1MDB political drama thriller could not have kicked off on a more suspenseful note. Just when everyone thought (and some were hoping) that the show has run its course and the audience have lost interest, the producers of the show have returned with some impeccable scriptwriting to keep Malaysians glued to the ever-evolving scandal.

Soon after the IPIC-1MDB debt “settlement” agreement where the Ministry of Finance (MoF) agreed to assume the guarantee provided by IPIC for 1MDB’s US$3.5 billion worth of bonds, MoF announced that the agreement to sell a 60% interest in Bandar Malaysia to a consortium led by Iskandar Waterfront Holdings (IWH) has been terminated.

The world was stunned when MoF’s wholly-owned subsidiary, TRX City Sdn Bhd, which owns Bandar Malaysia announced that the deal with the IWH consortium had collapsed because the latter did not meet payment obligations for its 60 percent stake. The consortium had disputed this claim.

While clarity on the above dispute remains unclear – with neither TRX City or IWH providing any evidence to substantiate their claims, there is now a new mystery as to who authorised the decision to terminate the agreement.

Based on Malaysiakini’s report entitled “Arul is against termination of Bandar M'sia deal”, government sources told the news portal that the RM7.41 billion deal was terminated without notifying Arul Kanda, the President and CEO of 1MDB.

However, at the material times, Arul Kanda was also the Chairman of Bandar Malaysia Sdn Bhd as well as a Board of Director of TRX City, before he was unceremoniously dumped by MoF four days after the termination announcement.  The Malaysian Insight had reported sources from MoF citing a “conflict of interest” on the part of Arul Kanda.

While we are keen to find out what exactly is the “conflict of interest” which necessitated Arul’s immediate sacking, we are even more interested to know who actually made the decision to terminate the agreement.

Since Arul Kanda was oblivious to the entire termination exercise, it meant that the Board of Directors of both TRX City and Bandar Malaysia never deliberated and made a decision on the matter involving a whopping RM7.41 billion transaction.

The Malaysian Insight reported that the decision to remove Arul was made by Finance Minister Dato’ Seri Najib Razak and Treasury Secretary-General Tan Sri Irwan Serigar Abdullah.  The question then arises as to whether Dato’ Seri Najib Razak made the unilateral decision to terminate the agreement.

If so, it should be clarified as to what powers does the Finance Minister have to make material and critical decisions of Government companies unilaterally, by-passing the companies’ board of directors?  Did Dato’ Seri Najib Razak abused his powers as the Finance and Prime Minister to terminate the IWH agreement?

It should be recalled that one of the biggest controversies over the 1MDB scandal was the powers granted to the Prime Minister to make all final key decisions in the investment company.  Clause 117 of 1MDB’s Memorandum of Articles and Association dictates that the Prime Minister must give his “written approval” for any of 1MDB’s deals, including the firm’s investments or any bid for restructuring.

It was Dato’ Seri Najib Razak who gave the ultimate approval for all the billions of ringgit of lost investments carried out by 1MDB with Petrosaudi International Limited and Aabar Investment PJS Limited.

The controversial clause has since been deleted upon recommendation by the Public Accounts Committee.  However, it appears that Dato’ Seri Najib Razak is still calling the shots behind the scene, bypassing key Treasury guidelines, as well as all forms of corporate governance and accountability which we have demanded to avoid a repeat of the 1MDB imbroglio.

We await the next episode with bated breath.

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The Ministry of Finance must explain the alleged “conflict of interest” which was the basis Arul Kanda was sacked from the Boards of TRX City and Bandar Malaysia

Last week, I had asked the Ministry of Finance (MoF) to sack Arul Kanda, if he failed to offer his resignation for his role in the entire collapse of the 1MDB rationalisation exercise.

Two quick succession of events over the past few weeks have completely unravelled the painstaking effort by the Najib administration to put a lid on the 1MDB scandal over the past two years.

Firstly, the MoF agreed to assume the liabilities amounting to USD3.5 billion for bonds issued by 1MDB but previously guaranteed by Abu Dhabi's International Petroleum Investment Corporation (IPIC). This concession only confirms what 1MDB had repeatedly claimed, that it has already paid IPIC USD3.51 billion is untrue.

Instead the funds were paid to a fraudulent company, Aabar Investment PJS Limited set up in the British Virgin Islands "Aabar(BVI)", which IPIC had denied any relation to. The question hence arises as to where did this money go to ultimately, especially since Aabar(BVI) has already been liquidated.

Secondly, Arul Kanda needs to be responsible for the collapse of the RM7.41 billion sale of 60% interest of Bandar Malaysia to a consortium led by Iskandar Waterfront Holdings (IWH). The question also now arise as to who will refund the 10% deposit or RM741 million which have been paid to 1MDB as Bandar Malaysia has since been taken over by MoF in March this year.

In a surprising turn of events, the MoF has actually sacked Arul Kanda from the Board of Directors of Bandar Malaysia and TRX City, even as he remains as the President and CEO of 1MDB.

The Malaysian Insight quoted sources that “there are potential conflicts of interest”.  This is shocking as Arul should only be acting in the interest of the Malaysian Government or by extension, the tax-payers of Malaysia.  What “conflict of interest” could it be which resulted in his sudden removal from the Board of Directors?

Arul Kanda tried to make light of the situation by claiming that it is the prerogative of the Ministry of Finance to remove him from the Boards.  He argued, even as he has yet to receive notification of his removal, that the two companies were transferred from 1MDB to Minister of Finance Inc (MOF Inc) with effect from March 31, 2017.  Hence “it is only reasonable to expect that MOF Inc will seek to appoint new directors, per its discretion”.

Few would believe that his removal really has nothing to do with the collapse of the Bandar Malaysia deal, one way or another.  If the intent was to remove him as ownership has been transferred to the Ministry of Finance, why wait until 2 days after the IWH deal turn sour?  Why didn’t the switch take place in March itself, when the transfer was executed?

Regardless, the Ministry of Finance must come clean with the very serious issue of “conflict of interest” which has resulted in Arul’s sacking.

The next question on everyone’s mind is, now that Arul Kanda has lost the confidence of the Ministry of Finance, will his role as the President and CEO of 1MDB remain tenable, and for how long?

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Iskandar Waterfront Holdings Consortium should be forthcoming with the facts and figures in TRX City dispute instead of being cryptic and wishy-washy in statements

The conflicting statements issued by TRX City, a wholly owned subsidiary of the Ministry of Finance, and the consortium led by Iskandar Waterfront Holdings (IWH) have become a complete farce.

In December 2015, 1MDB had announced that it has sold 60 per cent of its Bandar Malaysia interest to the consortium's vehicle, IWH CREC Sdn Bhd (ICSB) for RM7.41 billion.

TRX City Sdn Bhd, which owns Bandar Malaysia and has been taken over by the Ministry of Finance, claimed the agreement had lapsed because the consortium failed to make the necessary payments despite repeated extensions.

In disputing TRX, ICSB said it has made all necessary payments thus far, as outlined in the share sale agreement (SSA), and is also capable of meeting future payments.

"To date, ICSB has fulfilled all the required payment obligations under the SSA on its part towards TRX. ICSB has sufficient financial resources and capabilities to ensure the smooth and successful execution and implementation of the development of Bandar Malaysia," it said in a statement yesterday.

So who is telling the truth?  To quote the cryptic ICSB, whose “factual matrix does not fully and accurately reflect the circumstances and conduct of the parties in the matter”?

Thankfully, the matter should be easily clarified resolved. TRX claimed money isn't paid, while ICSB claimed it has, despite providing no evidence of payment.

Therefore, to put the matter to rest, instead of a verbal spat, all ICSB has to do is to provide specific details of (i) what they have paid, (ii) when they made the payments and (iii) what were the agreed payment terms.

Otherwise, there will be no credibility to the counter-claims made by ICSB.  On the other hand, if ICSB is able to provide proof of payment in accordance with the agreed terms of the Bandar Malaysia sale, proving unreasonable termination by TRX, I will certainly be demanding a response by TRX.

However, if ICSB fails to substantiate its claims, then Malaysians can see clearly that ICSB is only trying to desperately salvage the broken deal and its heavily damaged reputation, which have caused heavy losses to the share price of all companies related to IWH.

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Incoming RM42 billion taxpayers' bailout: Bandar Malaysia deal collapse, sale of Edra Energy at a loss and 1MDB-IPIC “settlement” mark total failure of 1MDB “rationalisation exercise”

The entire 1MDB “rationalisation exercise” announced as “completed” by the Prime Minister on 2016 New Year’s Day has been completely unravelled with the latest announcement that the RM7.41 billion sale of 60% equity interest in Bandar Malaysia has collapsed.

The Government of Malaysia, together with its debt-stricken wholly-owned subsidiary, 1MDB has embarked on the above exercise to shed itself of its mountain of borrowings, which at its peak, exceeded RM50 billion.

The rationalisation exercise commenced with the sale of 1MDB’s wholly-owned subsidiary, Edra Energy Sdn Bhd, which held all of 1MDB’s energy assets.  Edra Energy had acquired the power plants for a total of RM12.1 billion.  In addition, the Government of Malaysia had subsequently extended of concession period of the above plants, as well as awarded several new power plant concessions to 1MDB.

However, despite a global open tender, 1MDB could only secure the best bid of RM9.83 billion which resulted in a direct loss of RM2.27 billion.  The losses did not yet include the interest cost of funds borrowed to finance the above acquisitions which amounted to more than RM3 billion over the period.

Worse, the proceeds of the above sale of Edra Energy did not go towards the repayment of the US$3.5 billion worth of bonds which were raised for the power plant acquistion in 2012.

As a result, in a recently announced “settlement” agreement with International Petroleum Investment Corporation (IPIC), who guaranteed the US$3.5 billion worth of bonds, the Ministry of Finance (MOF) had agreed to assume the liability of the US$3.5 billion bonds and relieve IPIC of their obligations.

This had come as a complete shock to Malaysians as 1MDB and the Finance Ministers had previously insisted that 1MDB had already made payments amounting to US$3.51 billion to IPIC and/or its subsidiaries between 2012 and 2014.

Hence the outcome of the “settlement agreement” was that Malaysians will have to foot US$7.01 billion to discharge ourselves from the US$3.5 billion of 1MDB borrowings which 1MDB took to acquire the above power plants.  The power plants, in turn have already been disposed of, but without the proceeds from the sale being used to settle the US$3.5 billion bonds.

Now with the latest collapse of the proposed sale of 60% interest in Bandar Malaysia to the consortium led by Iskandar Waterfront Holdings Bhd (IWH), the entire “rationalisation” exercise architected by Arul Kanda and hailed by the Prime Minister and Cabinet has been completely unravelled.

The devastating implication of the rationalisation failure staring at our faces is staggering.  Because 1MDB simply does not have any more substantial tangible assets or cash in its books, the Malaysians tax-payer will have to pay for most of 1MDB’s still-outstanding debts including:

(i)             RM5 billion 30-year bond guaranteed by the Federal Government issued in 2009;
(ii)           US$3.5 billion 10-year bonds issued in 2012, now guaranteed by MOF Inc.;
(iii)          US$3 billion 10-year bond issued in 2013, guaranteed with a ‘Letter of Support’ issued by the Minister of Finance, Dato’ Seri Najib Razak;
(iv)          US$1.23 billion borrowed from IPIC in 2015, guaranteed by MOF Inc,;
(v)            RM800 million loan from SOCSO in 2010, guaranteed by the Federal Government; and
(vi)          RM2.4 billion sukuk issued in 2013, which have already been assumed by MOF

The above sums up to RM8.2 billion and US$7.73 billion, or a combined total of RM41.7 billion

While I have called for Arul Kanda, the 1MDB President and CEO to resign or be sacked yesterday, it is the Prime Minister, Dato’ Seri Najib Razak who must be ultimately accountable.

He is not only the official with the ultimate decision-making authority in 1MDB as specified in the company’s Memorandum and Articles of Association, his promises of resolution of the above scandal without a bailout by the Malaysian Government have been irredeemably broken.

What’s more, banking documents exposed by the United States Department of Justice (US DOJ) have shown Dato’ Seri Najib Razak to have received in his personal bank account in Malaysia, the sums of US$731 million originating from 1MDB.  He has never denied the US DOJ allegations and steadfastly refused to provide any explanations to the Parliament or the Malaysian public.

With Dato’ Seri Najib Razak’s iron-grip control over UMNO and Barisan Nasional, the country’s legislative, enforcement and prosecution institutions, it is now up to Malaysians to sack the Prime Minister in the coming general elections to ensure that he is made accountable for the single biggest financial scandal in the history of Malaysia.

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Who will refund the RM741 million deposit paid by Iskandar Waterfront Holdings to acquire the now aborted Bandar Malaysia equity interest – 1MDB or the Ministry of Finance?

The announcement by TRX City Sdn Bhd, now a wholly-owned subsidiary of the Ministry of Finance (MOF), that the RM7.41 billion sale of 60% equity interest in Bandar Malaysia has collapsed did not come as a surprise at all.

I have previously questioned 1MDB and the MOF as to why the prized asset was sold to a consortium, led by Iskandar Waterfront Holdings Bhd (IWH), whose total net assets is worth barely RM3.8 billion, less than half the above transaction value.  For the financial year ending 31 December 2015, the company’s net profit was before tax was only RM170.4 million.

Despite IWH clearly attempting to bite off more than it can chew, 1MDB had proudly announced on 31 December 2015 that IWH-Bandar Malaysia sale agreement “marks the final major milestone in the 1MDB rationalisation plan as presented to the Cabinet of Malaysia on 29 May 2015”.

1MDB President and CEO, Arul Kanda had boasted that “the [IWH] Consortium is a highly attractive development partner for Bandar Malaysia and their bid was fully in line with the objectives outlined in the RFP, namely value maximisation, acceptable commercial terms and certainty of transaction execution.”

The deal was expected to be completed by June 2016 but was delayed clearly by IWH’s inability of meet the agreed payment terms and schedules.  My questions in Parliament on the project status in November 2016 and April 2017 were met with cryptic replies from the Minister Finance, which revealed that the IWH consortium will pay a 6% interest on outstanding payments until the sums are fully-paid in 2023.

With the deal termination, the MOF have now got to independently service the RM2.4 billion of sukuk which 1MDB took for the purposes of the Bandar Malaysia project, but of which not a single sen was utilised for the property development.

MOF will also have to bear the burden of the making payments to Perbadanan Pewira Hartanah Malaysia, a wholly-owned subsidiary of the Armed Forces Fund (LTAT) which received a RM2.7 billion contract to relocate the Air Force Military Base, of which nearly RM2 billion was still outstanding.

Then there is now the all-important question as to who will refund the RM741 million deposit paid to 1MDB vby the IWH Consortium?

Will 1MDB now refund the deposit, or will MOF have to once again bailout 1MDB by forking out the RM741 million as a result of the 1MDB real estate fiasco?

Arul Kanda must now resign as the President and CEO of 1MDB to take responsibility for the disastrous fiasco and embarrassment caused to the Government of Malaysia.  If Arul Kanda does not take responsibility for his failure, then we call on the Ministry of Finance, whose Treasurer-General Tan Sri Irwan Serigar is also the Chairman of 1MDB to terminate Arul Kanda’s contract.

Arul Kanda has clearly failed to deliver on his promise and has displayed more hype than substance.  His severe error of judgement, choosing the IWH Consortium for the purported “certainty of transaction execution” have now caused massive losses for the MOF.

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Why is the PAC Chairman, Datuk Hasan Arifin as quiet as a mouse over the 1MDB-IPIC “settlement” where the Finance Ministry agreed to assume US$3.5 bil. of 1MDB liabilities from IPIC?

Malaysians are still up in arms over the 1MDB-IPIC “settlement” which was announced less than two weeks ago where the Ministry of Finance has agreed to assume US$3.5 billion of 1MDB bond liabilities which were previously bourne by the International Petroleum Investment Corporation (IPIC) of Abu Dhabi.

The Malaysian Government had agreed to do so despite the fact that both 1MDB and the Cabinet Ministers had in the past insisted that 1MDB had already paid to IPIC’s subsidiary, British Virgin Island-registered Aabar Investment PJS Limited (“Aabar(BVI)”) a total of RM3.51 billion between 2012 and 2014.

The Second Finance Minister, Dato’ Seri Johari Abdul Ghani had previously said he was “very confident” of 1MDB winning the arbitration fight against IPIC.  Despite the bravado displayed, it was 1MDB which capitulated before the arbitration proceedings commenced in full, with the Malaysian parties conceding pretty much to all substantive demands from IPIC.

However, the Second Finance Minister denied any responsibility for the outrageous settlement terms.  Instead, he shifted the blame to Dato’ Seri Najib Razak by pointing out that “the Prime Minister has made the decision for the country. That’s it,” and that the matter is now “beyond [him]”.

Dato’ Seri Johari Abdul Ghani even defended himself by revealing that there was a letter from the BVI Registrar of Companies clearly stating that Aabar(BVI) was indeed a subsidiary of IPIC.

While the existence of such a presumably legitimate letter still does not in itself prove that Aabar(BVI) isn’t a fraudulent set up, it does highlight the fact that the Government’s decision defies all logic.  After all, why would the Government then under all rational circumstances, concede to the demands of IPIC if there was nothing incriminating on the part of 1MDB? As the Malay proverb goes, there must be “udang di sebalik batu”.

This was the reason for my call for the newly-appointed Auditor-General and the Public Accounts Committee (PAC) to re-look into the 1MDB scandal in the light of the latest developments.

I certainly wasn’t the only one asking for a review.  Even Barisan Nasional Members of Parliament in the PAC, Marcus Mojigoh of Putatan who asked for the above letter to be presented and Aziz Sheikh Fadzir of Kulim Bandar Baru who asked where the payments to Aabar(BVI) went, are keen to obtain answers.

However, instead of responding to requests by multiple parties to re-open the inquiry, the Public Accounts Committee Chairman, Datuk Hasan Arifin has remained as quite as a mouse.  In fact, not only has he not released any statement on an issue of such import, involving more than RM15 billion of tax-payers’ funds, he has been avoiding media enquiries like plague!

I have been informed that he has refused to pick up phone calls, text message or emails from journalists with regards to the above.

Datuk Hasan Arifin’s lack of action is certainly consistent with his track record of covering up for the Najib administration – when he refused to summon the Prime Minister to the PAC as a witness, saying that he has to “cari makan”, and when he secretly and unilaterally amended the finalised PAC Report which was tabled in Parliament.

However, the fact that the loss of US$3.51 billion is staring at Malaysian faces today deserves at the very least, an acknowledgement from the Chairman of the PAC, the very institution conceived to check and scrutinise Government-related expenditures.

If Datuk Hasan Arifin cannot bring himself to, or can’t be bothered to perform his parliamentary and constitutionally entrusted role, he should have the moral decency to resign from his position.  He should give way to someone who is at least somewhat serious about integrity, accountability and being answerable to Malaysians.

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