Tuesday, May 09, 2017

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?

Friday, May 05, 2017

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.

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.

Thursday, May 04, 2017

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.

Tuesday, May 02, 2017

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.