Friday, May 15, 2015

1MDB - Why so shy Arul?

The suddenly media shy 1MDB President, Arul Kanda Kandasamy should confirm if he was involved in the US$975 million loan to 1MDB while he worked in the Abu Dhabi Commercial Bank (ADCB), prior to joining 1MDB

After it was exposed by the Singapore Business Times 2 days ago that the Deutsche Bank-led banking consortium will be recalling their US$975 million loan to 1MDB, it was discovered that Abu Dhabi Commercial Bank (ADCB) was one of the consortium lenders.

As highlighted by The Edge Financial Daily yesterday, the current 1MDB President, Arul Kanda Kandasamy was working in ADCB when the banking consortium granted the loan on 1st September 2014.

In addition, The Edge have reported 2 months ago that the proceeds of the above loan substantially went towards buying back options granted to ADCB’s sister company, Aabar Investments Limited to acquire 1MDB’s power assets. The 1MDB March 2014 financial report stated that the company had “agreed to compensate [Aabar] at a consideration agreed under the terms and conditions” of a 22 May 2014 settlement agreement which was never disclosed.

These options were initially granted to Aabar as part of the terms for Aabar’s parent, International Petroleum Investment Corporation (IPIC) to provide a guarantee for 2 1MDB bond issues amounting to US$3.5 billion (RM12.6bn).

Hence, the Daily rightly reported that:

This begs the question whether Arul was involved in putting together the loan to 1MDB and whether he was involved in the dealings of of IPIC and Aabar when he was working in Abu Dhabi.

Given the fact that ADCB, IPIC and Aabar are all owned by the Abu Dhabi government, it makes Arul’s role as 1MDB president even more delicate and subject to scrutiny of possible conflict of interest.

Given the above exposés, Arul Kanda would have no choice by to respond to the above claims to explain his degree of involvement in 1MDB fund-raising exercises prior to him joining the company. His silence on the matter will only strengthen the speculation that his interest may be conflicted, and 1MDB may have been compromised instead.

In addition, Arul Kanda must also disclose how much exactly did 1MDB pay to “buy back” the above options granted to Aabar Investments. The only amount cited in the March 2014 financial statements is US$250 million which was raised via a bridging loan facility in May 2014. However, the amount was not finalised and “final settlement will depend on the final valuation of the initial public offering”.

Therefore, the question is whether the US$975 million was also used to pay Aabar for the options. If it is indeed so, 1MDB would have paid an astronomical US$1.23 billion to the Abu Dhabi companies in order to secure a guarantee from IPIC for the US$3.5 billion loan. Under such circumstances, it would not be an exaggeration that 1MDB secured a guarantee from an international loan shark.

I am in a rare agreement with Kepala Batas Member of Parliament, Datuk Seri Reezal Merican Naina Merican who chided the Board of Directors of 1MDB. He told Malaysiakini that

The issues have been left unanswered for too long and this has tainted the government's image… The board bears the biggest responsibility in governing a company. But what the hell are they (1MDB's board) doing?

The Najib administration and Barisan Nasional Government is indeed already tainted beyond repair by the negligent and incompetent 1MDB Board of Directors. However, if they continue to be evasive of pressing and pertinent questions raised about the wholly-owned Ministry of Finance subsidiary, the Malaysia’s economy, reputation and credibility will be severely damaged as a result.

Tony Pua

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