June 7, 2015
Datuk Seri Husni never let Arul Kanda play games with you on 1MDB
by Alexander Winifred
Dato’ Seri Husni and PM Najib
The Finance Ministry-owned 1Malaysia Development Bhd’s (1MDB) attempt to explain its RM42 billion debt to silence detractors may have backfired.
Instead of putting to rest all the allegations about the “missing” money, the summary of 1MDB’s expenditure and debt released on Wednesday only raised more questions about the government development fund’s dealings.
“Companies don’t usually borrow funds for operating expenditure. It appears 1MDB may not have followed good business practices,” said Tan Sri Ramon Navaratnam, a former World Bank alternate ExectuiD and Deputy Treasury Secretary-General, referring to 1MDB’s RM5.8 billion borrowings for financial expenditure.
“The revelation by (1MDB president and CEO) Arul Kanda Kandasamy essentially revealed nothing that we don’t already know. The questions which we asked, however, remained completely unanswered,” said Public Accounts Committee (PAC) member and MP Tony Pua, who has emerged as an outspoken 1MDB critic over the last few years.
Most of the questions were aimed at 1MDB’s placement of a large percentage of its investment funds into overseas tax havens, said to be an unusual move.
1MDB had placed as much as RM15.4 billion of its borrowings into the largely engimatic investment funds in the Cayman Islands (Brazen Sky, RM6.1 billion) and British Virgin Islands (1MDB Global Investments Ltd (1MDB GIL), RM5.1 billion), as well as RM4.2 billion into Abu Dhabi-based Aabar Investment PJS.
Aabar, a subsidiary of the International Petroleum Investment Co with links to the Abu Dhabi royal family, last reported total assets of US$10.15 billion (RM37.54 billion) after it had been delisted from the Abu Dhabi Securities Exchange and taken private in 2010.
According to its website, Aabar holds a 21.6% stake in RHB Capital Bhd, the owner of RHB Bank Bhd and RHB Investment Bank Bhd. Brazen Sky’s funds are reportedly managed by Hong Kong-based Bridge Partners.
Bridge Partners’ website does not contain information about its management team or track record, but it does list about 70 business deals (mostly with Chinese firms) it has conducted as a financial advisor.
“We don’t have much (of an) idea about these overseas fund managers,” said Phua Lee Kerk, chief strategist at fund manager Phillip Mutual Bhd.
Phua said it “was a little abnormal” that 1MDB would choose to put such significant portions of its investment funds into foreign funds in tax havens, based on his understanding of the company.
“Generally, funds in tax havens are perceived to have higher returns but also carry higher risks. What we see in these funds is usually low transparency in nature,” said Phua.
He said companies with similar structures to 1MDB, which he likens to a sovereign fund, would normally only invest 10%-20% of their excess profits into high risk funds, usually associated with overseas hedge accounts.
The bulk of funds under a sovereign fund manager would usually be invested directly into businesses, instead of into little-known funds such as Brazen Sky and 1MDB GIL.
“In my opinion, it would have been better to give such large amounts to local fund managers to nurture the industry,” said Phua.
“I would very much prefer to have taken a conservative approach and after all, it’s the rakyat’s hard-earned money,” he said. “What exactly was the RM6.1 billion of investment in Brazen Sky which was parked in Cayman Islands?
They must hang together
“Why is it that despite Arul Kanda announcing that all of Brazen Sky’s investments have been “redeemed”, there’s still no cash at all in the BSI Bank Singapore?” asked Phua, a former head of a firm listed in Singapore’s second bourse.
Despite earlier saying it would wait for the Auditor-General’s report on 1MDB, the PAC commenced an investigation in late May.
“The Prime Minister’s statements and public responses made it necessary for the PAC to carry out (its own) inquiry as soon as possible,” Dr Tan Seng Giaw, Deputy Chairman of the committee, told The Malaysian Reserve yesterday.
Tan said the PAC’s investigation would concentrate on 1MDB’s financial governance, including “how, why, when and where 1MDB had acquired its funds, the ways these have been spent, the total amount of debts incurred and the interests”.
Meanwhile, the announcement of a formal inquiry by Malaysia’s central bank on Wednesday was welcomed but seen as overdue.
Bank Negara Malaysia (BNM) could have completed its enquiries easier if the authority had begun its investigation earlier, said the head of leading anti-corruption watchdog Transparency International’s Malaysian (TI-Malaysia) affiliate.
TI-Malaysia President Datuk Akhbar Satar said action in the “earlier stages” of concern would have facilitated smoother evidence gathering by the authorities.
BNM now needs to perform the investigation without fear or favour, said Akhbar, who formerly led the Malaysian Anti-Corruption Agency’s Training Division as its Director.
“Come out with the truth. This is an opportunity for 1MDB’s credibility in the eyes of the public to be restored,” he said. Malaysians are concerned that a 1MDB default would be disastrous to the economy, which is trying to break into the league of high-income nations by 2020.
In an interview on national television on Wednesday, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said Putrajaya would fail to meet its budget deficits if it was forced to shoulder the debt of the troubled company.
“What will happen? Our ratings will drop. When our ratings drop, our companies borrow from abroad, our currency value will drop like in 1998 when our ringgit at one point was over RM4, then how to pay debts?”
Ratings agency Moody’s said last week if governmental support for 1MDB moves away from fiscal consolidation measures, it could provoke a reassessment of its outlook for the country’s sovereign rating