Fund Scandal Looms in Malaysia

February 27, 2014

Fund Scandal Looms in Malaysia

Mysterious sovereign wealth fund may be billions in debt

NAJIB_RAZAK_091213_TMINAJJUA_05_540_360_100Political insiders in Malaysia say Prime Minister Najib Tun Razak could be facing a fresh political crisis due to the murky dealings of a sovereign fund established five years ago to drive investment in strategic domestic industries.

A widening circle of critics, fed in part by exhaustive reporting on independent news sites such as Malaysiakini, say the fund may have run up as much as RM40 billion (US$12.18 billion) in debt and has few assets to show for it beyond what are described as overpriced acquisitions of independent power producers in Malaysia.

On February 18, Opposition MP Tony Pua of the Democratic Action Party announced on the floor of Parliament that the fund, 1Malaysia Development Bhd, known as 1MDB, had yet to file accounts for the financial year ended March 2013 and that KPMG, the independent auditor, had suddenly resigned. Deloitte Malaysia has since taken over the accounts.

In 2012, 1MDB made a US$1.75 billion private bond placement, one of the biggest private US dollar bond placements on record from Asia, through Goldman Sachs, to acquire a portfolio of power assets. Other bond placements also have been made. According to US laws, failure to file financial accounts is a violation of the law, which should be raising concerns among the bondholders.

 ‘Bold and Daring’
A United Malays National Organization operative told Asia Sentinel a major scandal is lurking in the fund, which is wholly owned by the country’s Ministry of Finance, although no clear evidence has emerged of the exact nature of the scandal.  

Former Prime Minister Mahathir Mohamad and former Finance Minister Daim Zainuddin, both of whom have soured on Najib, are said to be questioning the operation of the fund. There has been a rising tide of gossip about the fund’s political connections, particularly to Najib’s wife, Rosmah Mansor, and a close friend, Low Taek Jho, who was active in founding the fund. 

Jho Low, as he is known, has become a New York social figure, seen out with Paris Hilton and pouring Cristal champagne for a succession of showgirls.  He and Rosmah’s son by her first marriage, Riza Aziz, produced The Wolf of Wall Street, a major box office success that has been nominated for a Best Picture Oscar. Ironically, the film can’t be shown in Malaysia because of its excess profanity.

Low reportedly was behind Wynton Group, which showed an interest in bidding for the famed Claridge’s, Berkeley and Connaught hotels in London. According to a Malaysian website, in a court document filed in Ireland, Low made the approach in 2010.  According to the court filing, Low was said to have had the backing of an unnamed Malaysian “sovereign wealth fund,” which was not named. Low has acknowledged having friends in Khazanah Nasional Bhd, another Malaysian sovereign wealth fund. The 1MDB fund wasn’t mentioned

Little is known of 1MDB’s operations. As Asia Sentinel reported at the time, it raised hackles when it started in April 2009 as a fund arranged by Jho Low and started by the Terengganu state government, which borrowed RM10 billion (US$2.87 billion at 2009 rates). Critics questioned why an oil-rich state with revenues of RM5-7 billion a year would have to borrow money to start a sovereign fund rather than using windfall revenues from oil and other commodity bonanzas.

The Terengganu fund morphed into 1MBD under the Ministry of Finance in September 2009 to “focus on strategic development projects in the areas of energy, real estate, tourism and agribusiness.” The fund’s website quotes Najib saying its mission is to “be bold and daring… to break new ground and do things differently.”

1MDB soon acquired a strategic partner in an obscure Saudi firm, PetroSaudi International, headed by Tarek Essam Ahmad Obaid, a member of the vast Saudi royal family. Reports indicated that PetroSaudi had signed a memorandum of understanding with Ghana National Petroleum Corp. although the MOU has apparently not resulted in a major project.  

According to a statement by Azmi Khalid, then chairman of the Parliament’s Public Accounts Committee, 1MDB loaned PetroSaudi about US$1billion, leading to additional questions over why a government fund set up to explore investment in Malaysia was loaning money to a joint venture in Africa. PetroSaudi, despite rumored ties to the Saudi royalty, was unable to come up with its own cash in the joint venture but got 1MDB to accept a potential oil site in Turkmenistan. Subsequently, the loans to PetroSaudi climbed to US$1.7 billion.

Debt and not much else
An exhaustive probe of the sovereign fund by writers Ho Kay Tat and Afiq Isa for the Malaysian publication The Edge, found that about all 1MDB has to show so far “is a multi-billion ringgit debt portfolio, the bulk of which was used to buy several independent power producers at hefty price tags.” 

Its main asset is a 48-hectare chunk of land passed to the fund by the government when the Malaysian Air Force closed its base at Sungai Besi, near downtown Kuala Lumpur’s Golden Triangle. It is a near-priceless plot that 1MBD is to develop as a financial center called the Tun Razak Exchange, named for Najib’s late father. That work hasn’t started yet.

Through a series of complicated financial engineering moves in 2012, the loan to PetroSaudi was prematurely terminated and redeemed, according to Tony Pua’s presentation on the floor of Parliament.

“However,” Pua said, “the repayment of US$2.32 billion (RM7.93b) was made in a perplexing manner in a “segregated investment portfolio” based in the Cayman Islands. To date no one has been able to verify with any certainty who the investment portfolio manager is, the fund’s performance or for that matter, if the money actually exists.”

The “investment” in the Cayman Islands, Pua said, “raises highly suspicious questions as 1MDB is desperately trying to raise funds through new bond issuance in Malaysia to fund its aggressive acquisitions of independent power producers as well as its mega-projects in Bandar Malaysia and Tun Razak Exchange. In fact, 1MDB is already laden with an estimated more than RM40 billion in debt, and hence such investments is a luxury that 1MDB does not have.”

KPMG, in 1MDB’s first financial statement in 2010, raised an “emphasis of matter” over a US$1 billion investment in the PetroSaudi joint venture, which was subsequently converted into a US$1.2 billion (RM3.95b) loan within a period of less than six months. The “emphasis of matter” was removed in subsequent financial accounts as the joint venture was servicing the loan with interest payments, it was also highlighted that 1MDB extended an additional US$700 million (RM2.3b) in loans to the JV, despite receiving less than US$200 million in interest between 2011 and 2012.

To date,  no one has been able to verify with any certainty who the investment portfolio manager is, the fund’s performance or for that matter, if the money actually exists, Pua said.

25 thoughts on “Fund Scandal Looms in Malaysia

  1. The Najib Administration must stop doing things in mysterious ways. The Prime Minister cannot put the entire nation at risk. That was not the mandate we gave him in the GE-13.–Din Merican

  2. Din,
    Just like what happen to Louis XVI & his ancien regime. France was broke through its involvement in expensive war with Great Britain. Its aristocrats just like the bodeking UMNOites were doing nothing but enjoying money flowing in. People are revolting. Damn! Time for UMNO to mampus just like France ancien regime.
    The lyrics of Palace of Versailes……….By Al Stewart,,,,,,Damn haunting

    “The wands of smoke are rising
    From the walls of the Bastille
    And through the streets of Paris
    Runs a sense of the unreal

    The Kings have all departed
    There servants are nowhere
    We burned out their mansions
    In the name of Robespierre

    And still we wait
    To see the day begin
    Our time is wasting in the wind
    Wondering why
    Wondering why, it echoes
    Through the lonely palace of Versailles

    Inside the midnight councils
    The lamps are burning low
    On you sit and talk all through the night
    But there’s just no place to go

    And Bonaparte is coming
    With his army from the south
    Marat your days are numbered
    And we live hand to mouth

    While we wait
    To see the day begin
    Our time is wasting in the wind
    Wondering why
    Wondering why, it echoes
    Through the lonely palace of Versailles

    The ghost of revolution
    Still prowls the Paris streets
    Down all the restless centuries
    It wonders incomplete

    It speaks inside the cheap red wine
    Of cafe summer nights
    Its red and amber voices
    Call the cars at traffic lights

    Why do you wait
    To see the day begin
    Your time is wasting in the wind
    Wondering why
    Wondering why, it echoes
    Through the lonely palace of Versailles

    Wondering why, it echoes
    Through the lonely palace of Versailles”

  3. With all the slandering and everything not right attitude with the present administration, me tot you gave your mandate to the other side.
    So wait until your frens turn to rule this bankrupt nation, then they can put into practice all the good governance they were keeping under wraps and will make you so happy ah!
    See how easy it is to keep your minds off other peoples problem. Enjoy life while the going is good……

  4. You don’t even need to know all the murky details to figure out that 1MDB is unsound. Its basically a HUGE HEDGE FUND – that deals in illiquid private assets – precisely what a hedge fund is NOT suppose to do. Why they compare to ENRON is because Enron was basically the same thing. The tendency was to keep borrowing based on higher valuation of illiquid assets. Any one of the assets valuation suddenly falls apart the whole pyramid collapse.

    In this case, the entire Ponzi scheme is based on 1) Malaysian govt implicit guarantee of the debt 2) the cheap real estate they got or more accurately STOLE from the rakyat, 3) Assuming the power assets somehow will continue generating cash even when their purchase agreements with buyers ends i.e. take away the 2,000MW project from TNB and it will all collapse.

    We don’t need to look further. THIS THING IS SCANDAL that keeps getting bailed out under the guise of “development” or “future”..

  5. Well, if the Keralan cloth merchant could do it so can Pinkie Lips. In fact, he can do better. Monkey see monkey do. That’s the long and short of the cerita.

    By the time this whole episode is through we’ll be on a slow boat to who knows where looking for the elusive land of milk and honey.

    Forget the kerbau, it no longer wants to take us on its walk into the sunset.

  6. Din, you should put double quotation marks on “we”… “we” did not give him the mandate in GE13, he STOLE it from us.

    No govt administration should do things in mysterious ways anyway. Only in Malaysia are crimes “legalized”. I wonder how long more we have to wait before we can live in a decently civilized manner.

  7. Fairijus,
    What check & balances? You mean those estates meeting convened by the last King of France. Hahahahaha! Hmmm……Do we have guilotine in Malaysia? Hahahahaha!

  8. OMG! Malaysia is heading for bankruptcy!

    We have seen bankrupt people and companies. But how would a bankrupt country look like? Can someone help illustrate?

  9. Dictionary of Sociology (entries for G)

    Gerontology. “The scientific study of the sociological and psychological aspects of aging and the problems of the aged”.
    I propose a new social science of “gerontocracy” for the SE Asia region. To study how elderly and supposedly long retired politicians continue to influence politics and official policies in their respective countries (and even remove recalcitrant successors from political office)

    Gesellschaft. “A term used by Ferdinand Tönnies to describe communities, often urban, that are large and impersonal with little commitment to the group or consensus on values”.
    A concept readily applicable to most Third World megacity “urban jungles”
    Well illustrated by Brother Bob Marley in his reggae song “Concrete Jungle”.

    Goal displacement: “Overzealous conformity to official regulations within a bureaucracy”.
    In Malaise-sia, the religio-moral police in action ! With cases of body snatching even.

    Growth rate: “The difference between births and deaths, plus the difference between immigrants and emigrants, per 1,000 population”.
    In Malaise-sia under the reign of a certain ex-PM, the population of Sabah experienced a truly amazing growth rate.

    Health: “As defined by the World Health Organization, a state of complete physical, mental, and social well-being, and not merely the absence of disease and infirmity”.
    When applied beyond the individual to the larger society, it can be seen that Malaise-sia is in a serious case of mental and social ill-health, e.g. neo-fascists loudly proclaiming their messages of racial supremacy and bigotry to the rest of the world, kangkung economic policies (the local version of American “voodoo economics”), monetary handouts as if Malaise-sia is the world’s wealthiest nation (not even Singapore, the world’s wealthiest nation – on a per capita basis – does so)

    Hidden curriculum: “Standards of behavior and beliefs that are taught subtly in schools”.
    In Malaise-sia, no better example of hidden curriculum than the BTN !

    Homophobia: “Fear of and prejudice against homosexuality”.
    Used as a tool to politically demolish DSAI in Malaise-sia by his enemies from kleptocratic UMNO Baru-BN. Unsuccessful so far, in spite of repeated attempts, much to their chagrin.

    Horizontal mobility: “The movement of an individual from one social position to another of the same rank”.
    In kleptocracies, corrupt public officials, once exposed, are not punished but merely experience horizontal mobility by being moved into another similar position.

    Human relations approach: “An approach to the study of formal organizations that emphasizes the role of people, communication, and participation within a bureau-cracy and tends to focus on the informal structure of the organization”.
    In bureaucracies of Third World kleptocracies, the informal structure can be very different from the formal structure as depicted in the organisational chart.
    For example, the Ministry of Foreign Affairs’ work can be complemented by “voluntary labour” carried out by close relatives of high officials.

  10. 1MDB, a Sovereign Wealth Fund – collapsing? Malaysia going bankrupt? Well, you can’t fault the Prime Minister cum Finance Minister nor Jo Low or whoever. Have you forgotten what the Inspector General of Police said when commenting on some aspects of the Auditor General’s Report such as paying exorbitant sums when purchasing for the Government? Well, the Wise One ala IGP said “stupidity is not a crime in Malaysia”. There you have it from the horse’s mouth. Claim stupidity and you can laugh all the way to the bank.


  11. Guys & Gals,
    People only remember Al Stewart as the singer of “Year of the Cat” & “Time Passages”. The more I listen to Al Stewart’s song, how frightfully true of his portrayal of histories. How many more Cassandra required to say before the government of the day led by UMNO/BN realises that shits already happen? In fact, I dare to say that the present government is damned incompetent & should be gone right. Understand why I play the song “Palace of Versailes”. Anyway, enjoy the song

  12. Din.
    I can highlight little that I knew about 1MDB.I swear this is true.

    Let see who is the actors and actress in this movie.

    The Chairman of 1MDB is Tan Sri Lodin also the Chairman of LTAT.The man who rescue Raja Ropiah and pay her $100m plus.He is a yesman.

    JLo,28 year old,the son of Larry low,a wellknow businessman from Penang.His parther was K.k Low,a Thai National who is now major shareholder of Multipurpose,the 100% shareholder of Magnum Corp.(4 Nombor ekor.)

    Remember when Singtel bought Taksin telco co in Thailand,he hold 2% shares in Taksin Telco on behalf of Singtel.That mean Singtel trust K.K.Low than Taksin.He must have been a Thai Resident at that time.Please check what year,I think at the same time he already a shareholder in Magnum.( a Foreigner cannot hold a shares in gambling co in Malaysia.A rule setup by BNM and MOF)

    The first 5 billions given to 1MDB was used to buy 3 PLC from Serawak.The company link to Taib Family.The amount $1,7 billions. And the balance $2 billions was used the speculated in derivitive product structure by DeuthBank and Standard Bank.(They speculated against jp¥ and interest rates.)1MDB lost all the money,
    The amount of money $1.7b used to buy three PLC was taken over Petrosaudi.A check with Saudy Authorities cofirmed this co had nothing to do with Saudi Sovereign Fund.This co was form in Seychelies Island with a paid up capital us$100.
    The balance of the.$5 billions which is around $700 million was used by Rosmah to give donation.JLo and Lodin make a magic show by showing 1MdB make $400 m profit from first year of operation.

    When 1MdB finish all the money,the managemant went to see Najib and tell him they want more money to invest in coal project.Najib without hesistation ask KWUP to loan 1MDb $ 2 billion rtg.
    They used the money to buy two coal mines,one in Mongolia and the other in Indonesia.They told Najib they will exctract this coal to be supply to Tenaga.The coal mine in Mongolia is deep in hinterland.The lorry need to travel almost one month before they can reach nearest Soviet port.In the end the Coal never reach Tenaga.(The coal in Indonesia never met Tenaga Spec.)

    Now the boys in 1mdb had a better ideas.The suggest to Rosmah and Najib ,1MD will buy the power plant in Malaysia .Most of these power plants have reach expire date of the concession agreement.

    Ananda was the first one to sell,He collected cool $8.5 billions rgt.This including Ananda powerplant in Cylon,Eyghpt and Bangla.

    The socond in from Genting $2 billions.This concession agreemenr was about to expire..(Why dont they wait until the agreement expire and the apply new agreement.)

    I was told Part of the money had to be donated to Yayasan 1 MdB and This Yayasan was solely control by Rosmah.

    Where do 1MDB got the money to pay for these aquisation.Borrow from the Bank.CIMB and Maybank.
    CIMB can smell the rat.They want to loan to be paid earlier,so maybank is the sole lander, exposure around $6 billions.If 1Mdb fal to pay the loan,all the PNB units holders will be roasted.

    1MDB raised another $3 billions before election at a vary high coupon rate.This money was transfer to cayman Island to be manage by an P?E managemant company.Why dont they disclose who is behind this co.Themplton,Mark Bovis or Jinn from Saudi.

    E&Y wanted to resign earlier and to be replace by Delliot ?They manage to convinve them to stay.

    Now I think E&Y must have find the mother of all skeleton until the US partners said ” run for your live”

    The govertment servant at MOF quite smart.The landers want the govertment guarantee for the loan and bond.They issue latter of confort but not guarantee. look like another PKFZ case.By the time they finished arguement in front of federal court,we will have new PM.

    I think I fully agree with the writer,This is the mother of all the scandal,bigger than Mamico,Carrian,And PKFZ

    No wonder when Daim talk about 1MdB, Najib had to cancel his golf game at Sungai Long.Tan Sri Tan Kim Hock had to play with 3 balls.

    It think if rafizi and Tony Pua persue the matter aggresively,Najib will have fever avery day.

  13. Uncle Din
    It would appear that 1MDB is nothing less than a scheme to ” 1 Merompak/ Mencuri Dana Bangsa”.

    As the country will be on the brink of bankruptcy, it will not be long that the next generation of Malaysian will be caught and imprisoned as ” PATI” driven to seek livelihood in Myanmar, Bangladesh or Indonesia by the droves. Some may be reported drown in attempting cross the Timors Seas to Aussies land.

    Those who chose to remain will be slaving toiling 24/7 forced to repay the nations debts.

  14. Don’t worry folks, 1MDB has just ‘won’ a 11 billion ringgit job from the BN government. It is slated for an IPO in the next couple of months. Let’s see who are the suckers.

  15. “This is the mother of all the scandal,bigger than Mamico,Carrian,And PKFZ.” Malim

    I’ll second that. It’ll make a good corollary to “The Wolf from Wall Street” – except that the Porn will be wiped out, from the screen-play to be replaced by Dreams of the White Palace.

    In the words of my favorite science fiction authors: “A Scam of Epic Proportions run by overgrown maladroit dysfunctional fetuses, that even the most wizened local gaffers would agree is without precedent – in terms of Deus ex Machina.”

    CIMB hasn’t been fully absolved, but MB is in deep, deep shyte. Ponzi, I heard someone say? In a manner, but this one is like whacking off every scheme that has potential to generate a Coma inducing cash-health ‘benefit’. Soon our most Erudite Dear Leader will be traipsing all over the Emirates to beg for injections of Capital to perpetuate the Con. Other GLC owned banks aren’t spared either.

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