Why Does the Second Finance Minister Persist on Denying the Obvious?

What future is there left for 1Malaysia Development Bhd if it’s not “wound down”?

One cannot wonder if there is a bunch of clowns running 1Malaysia Development Bhd (1MDB) and the Ministry of Finance with the number of statements which are issued but are subsequently denied.

On Friday last week, the Second Finance Minister, Dato’ Seri Ahmad Husni Hanadzlah issued the statement on spinning off Tun Razak Exchange (TRX) and Bandar Malaysia as separate independent entities, off-loading all of its energy assets via Edra Global and will be disposing of its questionable “units” to Abu Dhabi’s International Petroleum Investment Corporation (IPIC).

Bernama, the Government’s official mouthpiece meaning it can’t be wrong, followed up a report that “1MDB will be wound down by next year and its operations transferred to three separate firms”.

However, despite the seeming clarity of the issue, Dato’ Seri Ahmad Husni Hanadzlah chose to deny the above report. When asked by The Malay Mail Online to verify a Bernama report yesterday that 1MDB could be “wound down”, the minister replied “not true”, without elaborating further.

This is where the financial community and the Malaysian public are bamboozled by the flip-flop piecemeal responses given by our Ministers and 1MDB resulting in the complete loss of confidence in the Najib administration.

Why does the Second Finance Minister persist on denying the obvious?

There are only 3 parts to the 1MDB assets – its prized real estate which it acquired on the cheap from the Federal Government, its energy assets which 1MDB overpaid for their acquisition and its RM13.4 billion of dodgy and opaque “level 3 assets” held overseas.

If 1MDB is disposing of all these 3 assets in one form or another, then the Ministry of Finance is effectively winding down the controversial and scandalous 1MDB as there would be nothing left in the company. Unless of course, Dato’ Seri Ahmad Husni knows better and the Government intends to revive 1MDB with more funds for new groundbreaking investments?

Instead, our advice to Dato’ Seri Ahmad Husni is to face up to the truth directly instead of attempting any further fancy twist and turns. Why should the Second Finance Minister take the blame for the biggest scandal in Malaysia’s history that is not directly of his making? Being frank is the best and only way to ensure that his reputation doesn’t collapse to become a half-past-six Minister.

As it stands, the Federal Government is likely to buy back the TRX and Bandar Malaysia at inflated prices of up to RM10.4 billion in order to make them “independent entities”. Edra Global is likely to be sold or listed at a valuation less than 1MDB’s cost of acquisition. At the same time, despite the US$1 billion payment expected from IPIC, Malaysians are still clueless on the nature of IPIC’s role and participation in this exercise and the cost to the tax-payers.

Therefore, Dato’ Seri Ahmad Husni should not only concede that 1MDB is winding down via massive bailout exercise. He should be upfront to pronounce the Najib 1MDB adventure as a complete failure and disaster and demonstrate his determination to go after the culprits who have cause the multi-billion ringgit of losses to the country.



Tony Pua

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TRX and BM Split Underlines Growing Burden on Tax-Payers

Doesn't Tun Razak Exchange (TRX) and Bandar Malaysia becoming separate entities independent from 1MDB but remaining under the Ministry of Finance merely means the tax-payers will have to buy them out from 1MDB and bailing them out in the process?
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The Second Finance Minister, Datuk Seri Ahmad Husni Hanadzlah announced on Friday that TRX and Bandar Malaysia will be "established as standalone companies, with full autonomy and accountability for their operational and financial performance".
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However he emphasised that "the Ministry of Finance (MoF) will remain a key shareholder in TRX and Bandar Malaysia".

While the statement sounds rather innocuous as we see the disastrous 1MDB suffering from RM42 billion of debt being wound down, what does establishing these 2 properties as "standalone companies" under the MoF actually imply?

‎By the natural logic of the statement, it would mean that the MoF would acquire the shares of the companies owning these assets - KLIFD Sdn Bhd and Bandar Malaysia Sdn Bhd respectively.

On top of that, we are made to understand that the motive behind the action is to relieve 1MDB of its overwhelming debt burden.

If we were to put 2 and 2 together, we can only deduce that the Government will assume the debts arising from these 2 assets, and perhaps even pay 1MDB more based on their revalued and inflated asset prices.

Hence the plan to make TRX and Bandar Malaysia independent entities is in actual fact nothing innocuous at all. Instead it is a blatant attempt to bailout 1MDB with billions of ringgit of tax-payers funds!‎

As at 31 March 2014, the 70 acres Tun Razak Exchange land belonging to KLIFD Sdn Bhd has been revalued to RM2.7 billion. It is uncertain if the land has been pledged as a collateral for any loans taken by its parent companies.

At the same time, the 495 acres Sg Besi military airbase land sold to Bandar Malaysia Sdn Bhd has been revalued to RM4.29 billion while the property has been collateralised for a RM2.4 billion loan . In addition, the Federal Government has also given a guarantee to 1MDB Real Estate Sdn Bhd to raise a RM800 million bond to fund the airbase relocation.

If the Government is to assume all the liabilities of the 2 companies, it would cost us RM3.2 billion, before even taking into consideration other contingent liabilities such as payments to Lembaga Tabung Angkatan Tentera (LTAT) for the RM2.1 billion relocation contract.

However, if the Government is even more generous, the tax-payers might have to fork out a whopping RM7 billion based on the "revalued" asset prices of these properties.

If however the Government decided to acquire TRX and Bandar Malaysia at their revalued asset prices of RM7 billion and still relieve 1MDB of their associated loans of RM3.2 billion, then Malaysians will be forking out a total of RM10.2 billion just for these transactions alone.

Such a move will be a massive travesty because the Federal Government sold these 2 properties to 1MDB for only RM194 million and RM1.69 billion respectively, totalling less than RM1.9 billion.

If we were to pay the inflated RM7 billion or worse, RM10.2 billion to buy back these properties from 1MDB after only selling these land to the company at bargain basement prices less than 4 years ago, it would be nothing short of a daylight robbery.

It would only be fair for MoF to reimburse 1MDB only for the cost which have been incurred for the development of the land, amounting to less than RM200 million to date as well as the cost of the land – RM1.9 billion. Any amounts in excess of the above would mean Malaysians have been cheated into financing and bailing out the misadventures of 1MDB.

We call upon Dato’ Seri Ahmad Husni Hanadzlah to explain transparently how the Government intends to make TRX and Bandar Malaysia separate independent entities owned by the MoF.

Tony Pua

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We are "Pleased to Announce" - Desperate Times Calls for Desperate Measures

The Malaysian Ministry of Finance has gotten so desperate, he has to beg the investment arm of a foreign country for a US$1 billion loan to repay the debts of its own subsidiary.

It is only in Malaysia when the a Minister of Finance could be “pleased to announce” that the Ministry’s wholly-owned insolvent subsidiary managed to secure a US$1 billion loan from the investment arm of a foreign country, Abu Dhabi, to repay it own debts.

Dato’ Seri Ahmad Husni Hanadzlah stated that “1MDB has entered into a binding agreement with the International Petroleum Investment Company (IPIC) and its subsidiary Aabar Investments (Aabar)” where IPIC will make a payment of US$1 billion, on or before 4 June 2015.

“This US$1 billion payment will be used to repay a US$975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders,” according to the Second Finance Minister’s statement.

Malaysians are so embarrassed that our BN Government has no shame and had to resort to begging a loan and/or favour from a foreign government. This is because no other financial institution is willing to lend to 1MDB.

However, what is more important is what Dato’ Seri Ahmad Husni failed to elaborate, leaving Malaysians speculating and fearing for the worse. The US$1 billion payment would not have come for free, and would have had plenty of conditions attached to it. What are these conditions? Did 1MDB sacrifice even more of Malaysians’ future tax-payers’ funds to secure this desperate loan?

This isn’t the first time IPIC has come to the “rescue” of 1MDB. When 1MDB needed to raise funds in 2012 to acquire the independent power producers (IPPs), Tanjong Power and Genting Sanyen, 1MDB had to ask IPIC to provide a guarantee in order to raise the funds via 2 bond issues, each worth US$1.75 billion. The guarantee was necessary despite the fact that 1MDB priced the bonds very attractively at 5.99% coupon rate.

This guarantee was certainly no “friendly gesture” on the part of IPIC or the Abu Dhabi Government, but instead came at a exorbitant price to 1MDB. The extraordinary conditions attached contributed in no small way to the massive annual interest bill and cashflow crunch for 1MDB.

Firstly, 1MDB had to dock approximately 40% of the loan with IPIC as security deposit. This amounted to RM4.47 billion (US$1.4 billion) as disclosed in the March 2014 financial statements. Effectively, this means that 1MDB is paying 5.99% interest on a US$3.5 billion loan despite having access to only 60% of the funds or US$2.1 billion.

Secondly, 1MDB had to offer the option for Aabar to acquire up to 49% equity interest in Powertek Investment Holdings (PIH) and 1MDB Energy (Langat) which are the holding companies for the acquired IPPs in order to secure the guarantee.

Based on the latest financial statements, 1MDB disclosed that its subsidiary 1MDB Energy Holdings Limited has taken a bridging loan facility of US$250 million in May 2014 to buy back these options granted to Aabar Investments. This represents a compensation to Aabar although the final settlement consideration isn’t yet known. In fact, it has been speculated that the options compensation might be as high as an incredulous US$1 billion based on analysis by The Edge Weekly.

Effectively, this US$250 million (or more) represents a fee paid to IPIC in order to secure its corporate guarantee for 1MDB subsidiaries to raise US$3.5 billion, or at least 7.1% of the funds raised!

To put it bluntly, 1MDB might as well have gone to the loan sharks to raise the funds. It is mind-boggling why a 100%-owned subsidiary of the Ministry of Finance needed to become so desperate in paying such outrageous fees, costs and terms in order to secure financing for its activities back in 2012.

Despite the less than pleasant experience above, today we hear the Second Finance Minister proudly announcing that IPIC is extending another US$1 billion to assist 1MDB to repay part of its mountain of debt. He must immediately provide full disclosure on what this US$1 billion “assistance” is going to cost 1MDB, the Malaysian Government and the long-suffering tax-payers.

If not, it will be seen that Dato’ Seri Ahmad Husni Hanadzlah has become complicit in the entire multi-billion ringgit shenanigans Malaysia’s heist of the century.

Tony Pua

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Fake vs False Statements - A Subtle, but Major Difference

Arul Kanda’s cleverly-worded denial that he supplied fake documents to Bank Negara Malaysia (BNM) is another one of his trademark slippery attempts to obfuscate Malaysians.

According to Bernama, 1Malaysia Development Bhd (1MDB) President and Executive Director yesterday “rebutted claims that he had submitted a false bank statement to Bank Negara Malaysia”.

“We note with dismay that an online blog, Sarawak Report, continues to carry false information and direct unfounded allegations at 1MDB”. Arul Kanda claimed that the blog accused him of providing “a false bank statement to Bank Negara to imply that 1MDB had cash in a BSI account in Singapore.”

“This is a lie. I have never provided any such statement to BNM. To state otherwise is blatantly false and incorrect, as are any allegations that are based on this premise,” he protested as if he has been harshly victimised.

I was almost moved to lend him my shoulder to cry on. Except that the above was another one of Arul’s cleverly worded denial to mislead Malaysians who may not know any better.

Firstly, I’ve read again the various posts on the Sarawak Report with regards to the accusation Arul made, and I’ve struggled to find any segment in these posts which asserted that Arul Kanda supplied fake documents to BNM.

What I did read in the article entitled “Investigators Conclude 1MDB “Cheated” And “Made False Document” to Bank Negara, Deutsche Bank And Others” was that the Singapore authorities had supplied BNM with information alleging Arul Kanda distributing fake bank statements.

…the Singapore authorities had reported that an alleged bank statement submitted by 1MDB, in order to substantiate evidence about the contents of the fund’s BSI account, was in fact false according to the bank itself.

The bank denied the statement, presented to the authorities by 1MDB CEO Arul Kanda Kandasamy, was an authentic document or that it represented a true picture of the Brazen Sky account, which the PM/ Finance Minister has announced is holding USD$1.103 bil of the fund’s missing money.

Hence the key to the accusation was never specifically about Arul presenting a “false bank statement to Bank Negara”. It was about the fact that he had distributed such statements which was found to be false. It is crucial to note that Arul merely denied that it was specifically distributed to BNM.

Secondly, what was reported in the article was that Malaysian investigators were allegedly accusing 1MDB of

…making a false document (a letter to BNM) and submitted to Bank ‘2’. This is to make Bank 2 believe that BNM was informed that [the] funds are to be remitted to the joint venture’s parent account.

The intention was to mislead the Banks into believing that the beneficiary of the funds transferred from 1MDB to Good Star Limited was in fact to Petrosaudi International. The article also accused 1MDB of

…possible cheating and making false documents by 1MDB against Bank Negara Malaysia” and against two other banks, one of which is believed to be 1MDB’s bank, Deutsche Bank.

Hence what was alleged was a fake letter, purportedly addressed to the BNM but never delivered, which was used to deceive 2 different banks, including Deutsche Bank.

Arul, in his protestations of innocence, never referred to the above letter “addressed” to BNM. Instead he conflated the “false bank statement” and the “fake letter addressed to BNM” to deny that he ever submitted a “false bank statement to BNM” to obfuscate the reading public.

Arul Kanda should stop attempting to twist and turn with seemingly clever evasive manoeuvres. It is no different when he attempted to silence the critics of 1MDB’s investments in Cayman Islands when he announced on 13 January that the balance of the fund had been “redeemed” in its entirety. We now know of course, that the entire redemption was a fraud as there was no cash involved and whatever paper assets there was, was merely shifted from the Caymans to the BSI Bank account in Singapore.

Arul should get straight to the point – (i) did he distribute/present false BSI Bank statements (to anyone) and (ii) was there a fake letter addressed to BNM submitted to 2 banks by 1MDB. The more he tries to dance around the topic, the deeper a hole he will be digging for himself.

Tony Pua

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Mr Jho Low - "Are You Telling Me the PM Doesn't Make His Own Decisions?"

Unfortunately Jho Low told the truth that the Prime Minister is responsible for the RM42 billion 1MDB scandal and hence Dato’ Seri Najib Razak must immediately recuse himself from any further involvement with the 1MDB investigations and decision-making in the Company

The discovery of the Memorandum and Articles of Association (M&A) of 1Malaysia Development Bhd dated 2 September 2009, exposed the Clause 117 which placed absolute powers over the company’s decisions at the hands of the Prime Minister.

Clause 117 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.

This includes “any financial commitment (including investment), restructuring or any other matter which is likely to affect the guarantee given by the Federal Government of Malaysia for the benefit of the company, national interest, national security or any policy of the Federal Government of Malaysia”.

Other matters which need the Prime Minister’s written approval are amendments to the company’s M&A as well as all appointments and removal of directors and senior management team of 1MDB.

Therefore Jho Low was absolutely right and was telling only the truth when he blurted to Euromoney in March asking, “Guys, it's very simple, there's a board, who's the shareholder?”

“Are you telling me the prime minister doesn't make his own decisions? That the ministry, the finance minister, who is the prime minister – and there are only two to three people in the finance ministry that sign off on shareholder resolutions under law – that none of them... that they just signed without evaluating it?” he added.

With this confirmation of 1MDB’s M&A, all the responsibility over the colosal RM42 billion of debt and billions of ringgit of losses and missing cash falls directly and entirely on the shoulders of Dato’ Seri Najib Razak. He not only signed off all decisions, he was involved every step of the way.

As a result, we demand that Dato’ Seri Najib Razak recuse himself from any further involvement in all decisions over the investigations of the monster 1MDB scandal. Firstly, he must stop taking charge over the direction and manner the investigations are carried out. Secondly, the Auditor-General’s office, which is a department under the Ministry of Finance, must also stop reporting to the Prime Minister, who is also the Finance Minister, on its findings and investigations.

In addition, as Dato’ Seri Najib Razak is directly implicated in the transactions which took place in 1MDB, he must stop immediate participation in all on-going and future investment, restructuring and business decisions of the company until all investigations are completed. This is to prevent any attempt by the Prime Minister to effect any transactions to cover up any incriminating misdeeds which took place in the past.

If the Prime Minister were to continue his involvement in the investigations as well as 1MDB’s business decisions, the integrity and trustworthiness of any reports produced will be questioned and the public interest in the matter will be severely jeopardized.

Instead, the Deputy Prime Minister, Tan Sri Muhyiddin Yassin should be given immediate full authority over the direction of investigation of 1MDB. In addition, the Auditor-General must be directed to reported directly to the Public Accounts Committee over its findings, entirely bypassing Dato’ Seri Najib Razak to avoid any potential conflict of interest.

Finally, all major investments, restructuring and business decisions of 1MDB henceforth, must be approved directly by the Cabinet, and not be the Prime Minister alone, as dictated in the Company’s M&A. Where necessary, the M&A must be immediately amended to ensure that a proper set of corporate governance with the necessary check and balance is adopted by 1MDB.

Tony Pua

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There Is No Escape - Clause 117 Reveals PM's Absolute Accountability

The latest exposé by The Malay Mail Online and Malaysiakini confirmed that the entire responsibility of the RM42 billion 1MDB scandal lies with the Prime Minister, Dato’ Seri Najib Razak

In a sighted copy of the Memorandum and Articles of Association (M&A) of 1Malaysia Development Bhd dated 2 September 2009, The Malay Mail Online and Malaysiakini both exposed a special Clause 117 which placed absolute powers over the company’s decisions at the hands of the Prime Minister.

Clause 117 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.

This includes “any financial commitment (including investment), restructuring or any other matter which is likely to affect the guarantee given by the Federal Government of Malaysia for the benefit of the company, national interest, national security or any policy of the Federal Government of Malaysia”.

Other matters which need the Prime Minister’s written approval are amendments to the company’s M&A as well as all appointments and removal of directors and senior management team of 1MDB.

Therefore the above exposé debunked all previous attempts by the Prime Minister to disassociate himself from the management and operations of 1MDB.

When the 1MDB scandal was first exposed by the UK Sunday Times and The Sarawak Report, the former reported on 1 March 2015 that "the Malaysian government said the prime minister was not involved in the day-to-day operations of 1MDB, which is run by a professional and experienced team.”

Previously, even in Dato’ Seri Najib Razak’s letter of demand sent to me on 21 November 2014 over my alleged defamatory statements with regards to 1MDB, his lawyers stated unequivocally that “contrary to your defamatory statements… our client being the chairman of the Board of Advisors of 1MDB only renders advice to the Board of Directors of 1MDB who is tasked for the management and operation of 1MDB.”

In fact, he is even more involved in the matter directly than we, the 1MDB’s harshest critics, have anticipated as his role is specifically cast in stone in the company’s M&A.

With this confirmation, all the responsibility over the colosal RM42 billion of debt and billions of ringgit of losses and missing cash falls directly and entirely on the shoulders of the Prime Minister. Dato’ Seri Najib Razak should drop all pretence of ignorance and give up the farcical charade that 1MDB is a healthy and salvageable company because he is only acting to deny his own culpability and protect his own interest in the matter.

We call upon the Prime Minister to immediately schedule an official Ministerial Statement in Parliament during the current sitting to give a full and complete explanation of the mother of the mother of the mother of all scandals in Malaysia, the 1MDB heist of the century. In particular, the Prime Minister, who also acts as the Finance Minister, must explain in full, his involvement in the initial US$1 billion investment with Petrosaudi International Limited and the additional US$1 billion of loans extended to Petrosaudi. He must also explain his approval for the direct payment of more than US$1 billion to Good Star Limited, a company controlled by the controversial Jho Low as well as the US$260 million of funds siphoned from 1MDB used for the acquisition of UBG Bhd from the latter’s substantial shareholder, Tun Taib Mahmud’s family vehicles.

In addition, Dato’ Seri Najib Razak must now explain why 1MDB proceeded to raise bonds amounting to US$6.5 billion by paying fees in excess of 10% to Goldman Sachs International, as well as why a costly guarantee was sought from Abu Dhabi’s International Petroleum Investment Corporation (IPIC) for US$3.5 billion of these bonds.

Most importantly, he must disclose exactly where all the above 1MDB’s money is today. All of the above have led to 1MDB’s horrendous predicament today where it has no money to repay its mountain of debt nor service its interest amounting to some RM2.5 billion annually.

Tony Pua

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The Mystery of SRC International's Missing RM3.81 Billion

If Bank Negara Malaysia (BNM_) has already received the investigation report from Monetary Authority of Singapore (MAS), why haven’t there been any action taken at all?

The Minister of Finance has responded to my question with regards to SRC International’s investment in Gobi Coal & Energy Limited on 20 May 2015.

"Jumlah pelaburan SRC Interntional Sdn Bhd dalam syarikat Gobi Coal & Energy Ltd (GCE) adalah sebanyak USD60 juta yang mewakili 9% pegangan saham dalam GCE."

As highlighted by my statement in last month, London Stock Exchange listed company, Origo Partners Limited valued their 14% stake in GCE at only US$13.4 million in June 2014.

This means that SRC International’s 9% stake in GCE would be worth only US$8.6 million (RM31 million) today or a 85.6% drop in the value of investment. This represents a loss of US$51.4 million (RM185 million) to the company.

More importantly, the Ministry of Finance’s reply debunked the impression given earlier that the bulk of SRC investments were placed in GCE. In fact, the US$60 million or RM216 million investment in GCE only represents a small fraction of the RM4 billion of borrowings from Kumpulan Wang Amanah Persaraan (KWAP).

However, the reply by the Ministry raises another crucial question as the GCE investment valued at RM31 million today, represents only 0.8% of the RM3.81 billion of SRC International’s “investment portfolio outside Malaysia”.

The question hence arises, where did the rest of SRC International’s RM3.81 billion go?

In the light of the questionable “level 3 assets” of RM13.4 billion in SRC International’s former parent, 1Malaysia Development Bhd (1MDB) which appears to have gone missing, Malaysians are also interested to know if RM3.81 billion, most of which are also classified as “level 3 asset” are missing.

The Ministry of Finance must immediately disclose what are the RM3.81 billion of “investments” to prove that they are not trying to hide another multi-billion ringgit scandal. The failure to be transparent will only further erode the confidence of ordinary Malaysians in our public institutions and the Najib administration.

Tony Pua

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Show Me The Money - Big Loss in GCE Investment Only the First Piece of the Puzzle

If SRC International’s investment in Gobi Coal & Energy Ltd is only US$60 million (RM216 million), then where are the rest of the RM3.81 billion of funds?

The Minister of Finance has responded to my question with regards to SRC International’s investment in Gobi Coal & Energy Limited on 20 May 2015.

"Jumlah pelaburan SRC Interntional Sdn Bhd dalam syarikat Gobi Coal & Energy Ltd (GCE) adalah sebanyak USD60 juta yang mewakili 9% pegangan saham dalam GCE."

As highlighted by my statement in last month, London Stock Exchange listed company, Origo Partners Limited valued their 14% stake in GCE at only US$13.4 million in June 2014.

This means that SRC International’s 9% stake in GCE would be worth only US$8.6 million (RM31 million) today or a 85.6% drop in the value of investment. This represents a loss of US$51.4 million (RM185 million) to the company.

More importantly, the Ministry of Finance’s reply debunked the impression given earlier that the bulk of SRC investments were placed in GCE. In fact, the US$60 million or RM216 million investment in GCE only represents a small fraction of the RM4 billion of borrowings from Kumpulan Wang Amanah Persaraan (KWAP).

However, the reply by the Ministry raises another crucial question as the GCE investment valued at RM31 million today, represents only 0.8% of the RM3.81 billion of SRC International’s “investment portfolio outside Malaysia”.

The question hence arises, where did the rest of SRC International’s RM3.81 billion go?

In the light of the questionable “level 3 assets” of RM13.4 billion in SRC International’s former parent, 1Malaysia Development Bhd (1MDB) which appears to have gone missing, Malaysians are also interested to know if RM3.81 billion, most of which are also classified as “level 3 asset” are missing.

The Ministry of Finance must immediately disclose what are the RM3.81 billion of “investments” to prove that they are not trying to hide another multi-billion ringgit scandal. The failure to be transparent will only further erode the confidence of ordinary Malaysians in our public institutions and the Najib administration.



Tony Pua

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Deloitte Malaysia Must Come Clean to Restore an Already Fading Reputation

Deloitte Malaysia has become the laughing stock of the accounting and financial community with their highly questionable audit of 1Malaysia Development Bhd and their being made the shield by the Malaysian government to defend the company

Deloitte Malaysia’s reputation as an independent and established international auditing firm lies in complete tatters as controversy rages over the financial status of the Ministry of Finance wholly-owned subsidiary, 1Malaysia Development Bhd (1MDB).

Deloitte has taken over the auditing duties of the books of 1MDB after the previous auditors, KPMG quit its role well past the March financial year end of the company in 2013. Since then the firm has signed off the accounts of 1MDB without even an emphasis of matter, not to mention any qualification.

However the Deloitte’s auditing standards have been heavily question over the past 6 months as 1MDB struggled to pay its matured debt obligations and service its interests.

In particular, how is it possible that Deloitte’s audit partner, Ng Yee Hong, was able to get it so wrong by signing off its March 2014 accounts in 5 November 2015 without any qualifications when 1MDB was in all practical terms, insolvent. The Auditors wrote that “the Group’s holding of cash and short-term deposits, together with committed funding facilities and net cash flow from operations, are expected to be sufficient to cover its cash flow needs” (page 144).

However, by the end of the same month of November, 1MDB was forced to repeatedly extend its repayment of a RM2 billion loan which was due. In fact, 1MDB had to beg local billionaire, Tan Sri Ananda Krishnan, who assisted by arranging a private loan from local investors to finally settle the loan in February, mere days before a default event was declared.

Since then, 1MDB had received a emergency bailout fund of RM950 million from the Federal Government to assist in servicing its loans. 1MDB is also forced to sell its prized real estate to local government-linked funds to keep itself afloat. On top of that 1MDB has been negotiating to dispose of all its energy assets which it had purchased at an inflated price in order to raise funds to pare down its debts.

It beggars belief that a firm of Deloitte’s standing was so wrong and negligent over a multi-billion ringgit state-owned firm which has resulted in massive losses for the Malaysian tax-payers.

The international accounting and financial community are also scrutinising Deloitte’s assessment of the firm’s classification of RM13.4 billion of “Level 3” assets. “Level 3 fair value measurements are those derived from valuation techniques… that are not based on observable market data (unobservable inputs).”

While the classification may be technically correct, the question remains if Deloitte has its responsibilities “to maintain professional skepticism throughout the audit” and to identify and assess “the risks of material misstatement due to fraud” as required under the International Standards of Auditing (ISA).

The ISA clearly states, “for significant transactions that are outside the normal course of business for the entity… the auditor shall evaluate whether the business rationale (or the lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets.”

As a result of failing to perform its duties professionally and independently, the Prime Minister and the 1MDB Board of Directors have been using the Deloitte name as a shield against any misdeeds or malpractice, to defend the distressed 1MDB. Deloitte’s name gets tainted and dragged through the mud, making the firm the butt of jokes in the financial circles.

As an allegedly reputable international audit and accounting firm, it must come clean and protect its image of auditor independence and compliance with ethical standards in discharging their professional responsibilities. As it remains the auditor for 1MDB for the financial year ending March 2015, Deloitte must now leave no stone unturned for its audit of the company and restate the previous year accounts where appropriate in order to present the true picture of the financial state of the RM42 billion indebted company.



Tony Pua

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An Easy Way Out - PM Shifts Blame of GST-Hiked Prices on Traders

Dato’ Seri Najib Razak should stop being a hypocrite blaming petty traders for unscrupulously raising prices when his administration backed the single biggest profiteering exercise by the mobile telecommunication companies.

Bernama reported yesterday that Dato’ Seri Najib Razak blamed “the action of some traders who exploited the goods and services tax (GST) has burdened the people when the tax system was implemented last April 1”.

He said the traders should have reduced prices after the sales and services tax (SST) was abolished but they did not do so and instead took the opportunity to raise prices by 6% using GST as an excuse. He said,

"The GST issue is caused by traders, these traders are evil, they are not responsible, not the government, we have other policies. When traders exploit the situation, the people blame the government and prime minister."

"We have abolished SST of 10%, 5%, some people do not know about SST before, the problem (abolition) is, it should have reduced prices but another 6% is added, this is the cause."

"If want to be angry, get angry with the traders, they must be blamed because they do not have compassion to think about the people's interest."

The Prime Minister is being a complete hypocrite by shifting the entire blame of the substantial price hikes after the implementation of the GST on the traders, and traders only.

Pakatan Rakyat has repeatedly warned prior to the implementation of the GST that the BN administration was living in cuckoo-land to actually believe that the prices will fall post-GST. Then, the Finance Ministers and their deputies continued to dismiss the simple established economic fact that “price are sticky downwards”. Any Economics student would have been able to educate these Ministers on the simple dictum.

However, the Najib administration has believed that they could defy gravity and chose to proceed with the implementation of the GST. Dato’ Seri Najib Razak even had the audacity to claim in is 2015 Budget Speech that

"Of the 944 goods and services in the basket of goods of the CPI, the prices of 532 items or 56% are expected to reduce up to 4.1%... Meanwhile, about 354 goods and services may experience some price increase but less than 5.8%."

It is hence no surprise that the Prime Minister, who is also the Finance Minister, looks like a complete fool today.

What is even more galling is the sheer hypocrisy of the attempt to shift the blame on the petty traders when it is his administration which is endorsing the single biggest profiteering exercise by the multi-billion ringgit telecommunications industry.

On Tuesday last week, the Communications and Multimedia Minister, Datuk Seri Ahmad Shabery Cheek repeated his defence in Parliament for these companies to raise tariffs by 6% with the switch from the SST to GST.

Prepaid mobile users no longer receive RM10 of airtime for each RM10 purchase despite a 6% SST being imposed. Instead today, they will enjoy only RM9.43 of call services for every RM10 paid after the switch to the 6% GST.

The Minister isn’t only supporting a industry-wide profiteering exercise, he is endorsing their anti-competitive behaviour as these companies colluded to implement a uniform and concurrent 6% price hike.

Hence the Najib government has betrayed the rakyat’s interest in favour of even more profit for the already highly profitable telecommunication companies. Last year, despite absorbing the 6% service tax, Maxis Communications, Digi Telecommunications and Celcom Axiata made pre-tax profits of RM2.44 billion, RM2.65 billion and RM3.1 billion respectively in 2014.

In total, they collected RM12.8 billion in prepaid mobile services revenue for the year. Why is the BN Government helping these highly profitable companies make an additional estimated RM770 million in profits? These numbers doesn’t even include the multi-million ringgit revenue and profits made by other mobile virtual network operators (MVNO) in the country like U-Mobile, Tune Talk and XOX.

While the Ministry of Domestic Trade attempts to punish the restaurants raising the prices of roti canai by 30 sen, the Najib Government embraces the RM770 million windfall profits for the mobile telcos. There can be no bigger unscrupulous profiteering exercise in the country today as a result of the GST implementation and Dato’ Seri Najib Razak chooses to be a blatant hypocrite to fully endorse the burden to be placed on the man-on-the-street.



Tony Pua

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A Very "Costly" Mistake - Dato’ Seri Ahmad Husni Blames 1MDB Asset/Cash Mix-Up on Mistaken Impression

Second Finance Minister Dato’ Seri Ahmad Husni Hanadzlah’s excuse that the mistake over “cash” or “assets” in 1MDB’s BSI Bank Singapore’s bank account due to “wrong impression” is lame, unbelievable and inexcusable.

Dato’ Seri Najib Razak finally confirmed what Malaysians feared earlier this week that there isn’t any cash redeemed from the Caymans investment. Instead, whatever held in BSI Bank is only in the form of “assets”.

The Second Finance Minister, Dato’ Seri Ahmad Husni Hanadzlah further explained yesterday that the error was due to a mistaken “impression”.

“There’s a mistake… mistake in the sense that, the impression (given by 1MDB) when they said they have redeemed (the funds) and saved (them) in the Singapore bank (Singapore BSI).... so the impression is that there’s cash, (but) actually that is a saving,” Ahmad Husni said told reporters at the Dewan Rakyat yesterday.

“That (the redemption) is (in) unit... that’s what it is… in unit, and then, that is being backed sovereign wealth funds,” Ahmad Husni said.

The “mistake” by 1MDB and/or Ministry of Finance (MoF) due to a wrong “impression” is not only lame and inexcusable, it is unbelievable and inexcusable. How can anyone one given the responsibility of managing US$1.1 billion (RM4 billion) in a bank account make such an audacious error of mistaking assets for cash?

Who is to blame for such a massive mistake? Is it the MoF which misunderstood 1MDB, or was it 1MDB which provided MoF with the wrong information?

In fact, we can’t even be sure if Dato’ Seri Ahmad Husni understood what exactly is deposited the BSI Bank, now that he is describing the assets as “in unit”. After all he has been giving various misleading information in Parliament over the 1MDB scandal even in the last sitting, particularly over the role of CIMB Bank in the sale of 1MDB’s energy assets.

More critically, the various press statements by the President and Executive Director of 1MDB, Arul Kanda specifically confirmed that the money was kept in cash in Singapore, with the specific purpose to repay the interest for 1MDB’s US Dollar denominated bonds.

Arul Kanda in an interview with the Singapore Business Times published on 7 February, announced that “as we have US$6.5 billion (RM23.06 billion) in bonds out there, in which interest payments come up to nearly US$400 million (RM1.4 billion) a year.”

The 1MDB President specifically stated, “the cash is in our accounts and in US dollars. I can assure you (about that)... I have seen the statements.”

Hence what statements did he actually see? Did he also succumb to a mistaken “impression” of the US$1.1 billion in the bank statement too? After all, Arul Kanda boasted that 1MDB made a profit of US$488 million which were included in the “cash” of US$1.1 billion above.

The repeated patterns of half-truths, misleading statements and outright lies over the 1MDB fiasco have resulted in a complete distrust for the discredited Barisan Nasional Ministers and 1MDB senior executives. The only way for them to regain any semblance of credibility is to publish the actual BSI Bank statement reflecting these “units” of “assets” that are allegedly worth US$1.103 billion.

Surely the Ministers of Finance can demand the statement from 1MDB and make available the information to the Malaysian public? Or would they rather hide the information because the statements will reflect worthless “units” of “assets”?

The sheer dishonesty, the scale of the cover up and the magnitude of incompetence certainly justified the Deputy Prime Minister Tan Sri Muhyiddin Yassin’s call for the entire Board of Directors of 1MDB to be sacked.

However, that’s not enough. We have 2 Finance Ministers and 2 Deputy Finance Minister, all four of whom have been utterly incompetent and clueless over the entire RM42 billion scandal. If they are not able to even provide Malaysians with simple accurate information as to whether the US$1.1 billion is in “cash” or “assets”, or what exactly these “unit” of “assets” are, then their heads should roll too.



Tony Pua

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The Cayman Bluff - Arul Kanda's Manipulation Deserves The Sack

1Malaysia Development Bhd (1MDB) President and Executive Director, Arul Kanda Kandasamy must be sacked immediately for lying to Malaysians about the non-existent US$1.1 billion cash in Singapore

On 5 January 2015, Arul Kanda Kandasamy was appointed as President and Group Executive Director of 1Malaysia Development Bhd (1MDB).

The Chairman of 1MDB, Tan Sri Dato Seri Lodin Wok Kamaruddin stated that:

Arul brings a wealth of experience from the financial world and a proven track record of transforming businesses. His transaction expertise and operational excellence will be invaluable to 1MDB as it undertakes a strategic review of the business, the objective of which is to ensure that 1MDB is best positioned to fully realise value from its investment portfolio and fulfil its broader economic objectives.

However, instead of using his “wealth of experience” to ensure that 1MDB stops leaking and starts taking full responsibilities of it’s financial crisis, Arul Kanda has chose to cover up the highly dubious transactions in the company and blatantly lied to the Malaysian public.

On 13 January 2015, in one of his first 1MDB transactions, Arul Kanda announced that the company “has now redeemed in full the US$2.318 billion invested by the company in a Cayman Islands registered fund”.

By redeemed, it would have meant that 1MDB has sold its investments based in Cayman Islands for US$2.318 billion and the money is received by 1MDB.

Arul Kanda subsequently confirmed the above presumption in an interview with the Singapore Business Times published on 7 February. He announced that while the funds amounting to US$1.103 billion would not be repatriated back to Malaysia, it would be kept in US dollars “as we have US$6.5 billion (RM23.06 billion) in bonds out there, in which interest payments come up to nearly US$400 million (RM1.4 billion) a year.”

The 1MDB President specifically stated, “the cash is in our accounts and in US dollars. I can assure you (about that)... I have seen the statements.”

When questioned in Parliament, the Minister of Finance, Dato’ Seri Najib Razak confirmed to me in writing on 10 March 2015 that the US$1.103 billion held in cash is parked with the Swiss branch of BSI Bank in Singapore.

Hence it came as a complete and utter shock to Malaysians when the Finance Minister in a subsequent reply to me 2 days ago, informed us that 1MDB now claims there isn’t any cash redeemed from the Caymans investment. Instead, whatever held in BSI Bank is only in the form of “assets”. There is also no clarity as to the nature and value of these “assets”, which may be worthless for all we know.

In effect, we know now that all the new 1MDB President executed was a “slight-of-hand” transaction by just moving the “assets” to BSI Bank. He then pretended that the moving of assets to be a “redemption exercise”. There was in fact no actual sale of the Cayman assets!

Arul Kanda then tried to bluff gullible Malaysians that 1MDB got back all it’s money and even “made a profit of US$488 million” in the entire Petrosaudi to Caymans transactions.

To arrest the persistent queries over the nature and whereabouts of the redeemed funds, Arul Kanda then blatantly lied by assuring us that “the cash is in US dollars” and that he has “seen the statements”. He even cooked up the excuse that the money needs to be kept in US dollars because it is needed to service the interest of 1MDB’s US dollar bonds.

The above proved that Arul Kanda is an unscrupulous liar and a man without any honesty and integrity. His continued leadership of 1MDB will certain hamper the discovery of the truth and the culprits, which may result in further unbearable losses to the financially stricken company.

The Prime Minister, Dato’ Seri Najib Razak and the Board of Directors of 1MDB will have no other choice but to immediately relieve Arul Kanda of his roles and duties in 1MDB. The failure to immediately sack Arul Kanda will further taint the Prime Minister and the Board of Director’s culpability for the monstrous sins of 1MDB.




Tony Pua

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KLIA2 ever-Ballooning Costs - Dato’ Seri Liow Tiong Lai's Crumbling Defence

Dato’ Seri Liow Tiong Lai is the most blinkered Transport Minister ever by claiming that there was never a cost overrun for the construction of the KLIA2 Airport.

Malaysians are left in a state of disbelief when the Transport Minister, Dato’ Seri Liow Tong Lai told the Parliament, in response to a question from my fellow DAP Member of Parliament for Raub, Datuk Mohd Ariff Sabri Abdul Aziz that:

Actually, the KLIA2 project has never experienced cost overruns. The cost of the project increased because of an additional scope due to the new design concept for klia2, or the specific needs of the stakeholders like airlines and the government.

The Minister’s reply yesterday runs contrary to all the facts staring at Malaysians in the face, and all the previous announcements by both the Ministry of Transport and the Malaysia Airports Holdings Bhd (MAHB).

The initial budget for the airport when it was first announced by Dato’ Seri Ong Tee Keat, the then Transport Minister in July 2007 was only RM1.7 billion. The budget was subsequently increased to RM2.0 billion in March 2009, and then RM2.5 billion in October 2010.

MAHB then shocked Malaysians by disclosing that the cost of the new airport has ballooned to RM3.9 billion due to cost overruns in November 2011. Following that, in October 2012, we were told in Parliament by the then Deputy Transport Minister, Dato’ Abdul Rahim Bakri that the cost was increased to RM4 billion.

These findings were investigated at length and confirmed by the Public Accounts Committee which tabled its report to the Parliament last November. The report on the RM4 billion ringgit KLIA2 scandal had found many suspicious and controversial decisions by by MAHB. Not only the cost of the airport more than doubled the original budget of RM1.7 billion, it was delayed multiple times by more than 2 years.

The findings included the decisions to locate KLIA2 at KLIA West, a site which has been documented by engineers as costly and ill-suited for airport construction; and the choice of a satellite-type terminal instead of a finger pier terminal as proposed by the airport consultants as among key causes for the massive cost-overrun.

However, Dato’ Seri Liow Tiong Lai chose to pretend that none of the above findings existed and continued to deny the obvious, like a blinkered horse, claiming that any increase in cost was due to “additional scope”.

In fact, Dato’ Seri Liow should be held in contempt of the PAC findings because he has stubbornly refused to accept the parliamentary committee’s primary recommendation – that is for the Ministry to instruct the Auditor-General to carry out a thorough and complete audit of the KLIA2 project.

This is despite the fact that the Transport Minister himself expressed support for the above recommendation for in January this year. It appears that the “support” expressed is nothing more than another empty promise to deflect criticisms by the public and the media for transparency and accountability.

Clearly Dato’ Seri Liow is worse than his predecessor, former MCA President and Transport Minister, Dato’ Seri Ong Tee Keat who at least had the courage, after much criticism to call for an independent audit by PriceWaterhouse Coopers (PwC) on another RM12.5 billion Port Klang Free Zone scandal.

The current MCA President however, lacks any authority, courage and backbone to do the right thing and ensure that those accountable for the RM4 billion KLIA2 fiasco are punished to ensure that such transgressions are never again repeated in all government and government-related projects. Instead, Dato’ Seri Liow became the most hopeless Transport Minister ever by backing and defending the culprits who caused substantial losses to Malaysian taxpayers.



Tony Pua

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Delloite, 1MDB's (not so) Invisible Shield

Dato’ Seri Najib Razak needs to stop using Deloitte auditors like an invisible shield which will be able to deflect all bullets and start giving some real answers.

The Prime Minister, Dato’ Seri Najib Razak has been touring the country to defend his flagship investment baby, 1Malaysia Development Bhd (1MDB) in the light of heavy criticisms pouring in against the company and his leadership in managing the company.

While Dato’ Seri Najib Razak, who is also the Finance Minister, pleaded for the critics to wait for the investigation reports by the Auditor-General before judging 1MDB, he himself have no qualms to immediately absolve 1MDB from any wrong-doings, embezzlement and misappropriations.

Last Saturday, he had the nerve to tell UMNO Selangor members in Klang that "the [1MDB] RM42 billion is not lost. There, the 70 acres TRX and 500 acres Bandar Malaysia lands." That argument is ridiculous because 1MDB only paid RM1.86 billion for these pieces of land.

Yesterday, he tried to convince the UMNO former lawmakers’ club, Mubarak, that RM42 billion could not have disappeared “because the accounts were audited by Deloitte. Auditors will not sign if even RM1 million is missing. Now it is said that RM42 billion has vanished. How can it vanish? It hasn't vanished, there are assets, there are liabilities."

This argument takes the same line as the one taken by the 1MDB Board of Directors where they stressed last week “that 1MDB accounts are audited by an international audit firm, Deloitte”. It said that Deloitte signed off 1MDB’s 2013 and 2014 accounts without qualification.

For the well-informed, the attempt to use Deloitte as a shield is clearly misleading and disingenuous.

Firstly, Deloitte could very well have abetted or assisted 1MDB in producing their “unqualified” accounts. Such complicity would not be the first as we have seen how the world’s largest auditing firm, Arthur Andersen collapsed overnight over their role in the multi-billion dollar Enron financial scandal in the United States.

Deloitte has at the very least been negligent because 1MDB failed to produce the necessary funds to repay a RM2 billion loan at the end of November 2014, despite the auditors signing off the accounts in the first week of the same month. Surely a firm with facing such imminent going concern crisis should never have had their accounts signed off without even an “emphasis of matter”.

Alternatively, the management of 1MDB could very well have misled Deloitte. For example, it was recently exposed by The Sarawak Report that 1MDB’s bank statements in BSI Bank, Singapore were purportedly forged and circulated by the top management of 1MDB to secure loans from lending banks.

Secondly, while Deloitte did sign off the 1MDB accounts for March 2013 and 2014, it did not mean that there were no questionable elements highlighted in the financial statements.

While the balance sheet of 1MDB in 2014 would show that it has RM51.4 billion of assets which is more than its RM50.0 billion of liabilities, the Auditors classified 26% of these assets or RM13.4 billion as “Level 3” assets. “Level 3” assets are where “fair value measurements are those derived from valuation techniques that include inputs… that are not based on observable market data (unobservable inputs).”

In other words, the Auditors have put on record that they are unable to vouch for the veracity and accuracy of these numbers which were supplied by the 1MDB management. Therefore even a mere 20% shortfall in the above “Level 3” asset valuation would trigger a severe liquidity crisis by 1MDB, as we witness today.

The RM13.4 billion “Level 3” assets doesn’t even include another questionable US$1.4 billion (RM5 billon) pledged to Aabar Investment PJS as collateral for the guarantee provided by the latter’s parent, International Petroleum Investment Corporation (IPIC).

If 1MDB is as healthy as Dato’ Seri Najib Razak insists it is, then there would have been no need for the company to beg local billionaire, Tan Sri Ananda Krishnan to arrange for a RM2 billion loan to assist 1MDB to repay its matured debt. There would also not have been a need for the Cabinet to approve an emergency RM950 million “standby credit facility” for 1MDB to service its outsized loans.

Therefore, the Prime Minister must stop misleading the people of Malaysia with half-truths and lies by claiming that being audited by Deloitte is proof that 1MDB is in the pink of health. While the UMNO brethen may not know any better, such attempts to absolve 1MDB and himself from the monster scandal only serve to worsen his credibility and reputation in the financial community.



Tony Pua

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TNB CEO Datuk Azman Mohd - "1MDB Are Not In a Position to Dictate Terms."

We wholly support Tenaga Nasional Berhad’s position not to pay 1Malaysia Development Bhd (1MDB) any premium in the event that TNB is to take over the 2000MW coal-fired power plant from the latter.

The Minister of Energy, Green Technology and Water, Datuk Dr Maximus Ongkili confirmed on 12 May 2015 that Tenaga Nasional Bhd (TNB) is in discussion with 1Malaysia Development Bhd (1MDB) over acquiring the biggest equity in the 2000MW coal-fired power plant, known as Project 3B.

Malaysians’ concern had been that TNB would be arm-twisted into paying a premium for the project which was controversially won by 1MDB despite the latter failing to fulfil the terms of the concession. In particular, 1MDB has failed to secure the necessary funding to finance the RM11 billion project which has resulted in at least 8 months delay.

If TNB were to pay a “premium” on the concession, it would not only constitute a bailout of 1MDB by TNB, but also the consequential increase in the electricity tariffs for Malaysians as a result of increased cost to TNB.

Therefore it came as a massive relief to Malaysians when TNB CEO Datuk Azman Mohd announced on the same day that TNB “will not pay a premium for the project. We will just pay them (1MDB) for costs incurred. If anything, we will ask for a discount. They (1MDB) are not in a position to dictate the terms.”

In the event that TNB is to acquire 1MDB’s interest in Project 3B, then we are in full support for the position taken by Datuk Azman Mohd to rightly seek a discount on the cost incurred by 1MDB, instead of paying a unjustifiable “premium” to bail out the latter.

However, we are also concerned that Datuk Azman Mohd will be seeking “a revision in the tariff” in the event TNB takes over, claiming that the project may not otherwise “be commercially viable”.

As the project was awarded via an open tender, the Energy Commission (EC) must not approve any transfer in the rights of the power plant concession if it will involve any changes in the tariff agreed. Such a revision will make a complete mockery of the “open tender” exercise to seek the lowest possible tariffs among qualified bidders.

In fact, 1MDB only managed to win the concession as the lowest bidder after another consortium led by YTL Power was disqualified last minute on controversial technical grounds despite submitting the lowest price.

Therefore, in the event that the sale of the 2,000MW power plant concession involves a potential change in tariffs or any “premium” payout, then the EC must reject the transfer, terminate the concession and re-open a new tender exercise for the power plant. In fact, the EC must also financially penalise 1MDB for failing to fulfil their obligations in the concession contract and jeopardising Malaysia’s energy cost and security.

In fact, the TNB CEO rightly pointed out that the EC “can take it back and do a rebidding. It is up to the government to decide.”

Hence, to protect the independence, integrity and good governance of the Government and the regulating authority, the EC must immediately prepare to call for a new open tender exercise for the Project 3B to ensure that the power producer with the lowest possible tariffs are given the right to carry out the project. Otherwise, ordinary Malaysians will be faced with the inevitable burden of having to pay for higher electricity costs.



Tony Pua

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