IT IS THE WEEKEND.
Therefore we shall just talk about something serious in a light-hearted kind of way.
Below is an article by the website CiliSos which delved into the financial fiasco called 1MDB. CiliSos asked 6 simple questions for the government and 1MDB to answer.
Be careful CiliSos, the Prime Minister in his latest blogpost had said that those who question 1MDB (actually he was only addressing Tun Dr Mahathir) are motivated by self-interests, not Malaysia’s interests. Why are you so selfish CIliSos?
But since everyone are asking the same type of questions, it seems all of us the rakyat are selfish people.
Good work on the article. We love it.
6 SIMPLE QUESTIONS ANY MALAYSIAN CAN ASK 1MDB’S BOARD 🙂
Before we begin, if you’re reading this and you’re still not very sure about what exactly 1MDB is, we highly recommend reading another article that we’ve written here.
If you’ve followed the news on 1MDB, you may have heard that its CEO, Arul Kanda Kandasamy, recently gave a breakdown of the RM42 billion debt of 1MDB.
In his statement, Arul Kanda shows us how much was invested in what. He shows us that the debt did indeed reach a total of RM42 billion (RM41.8 to be exact). He shows us that we owe people a lot of money. Then he says this.
“We trust this clarification will help to clear any confusion on this matter.” – 1MDB CEO, Arul Kanda, as quoted by The Malay Mail Online
So we know we owe a lot of money is involved, we know we have a lot of debt, and we know where all this debt is from. Unfortunately, for most of us, these numbers are just numbers. We don’t know what they mean, we don’t know how they affect us, and we sure don’t know what’s at stake.
So Arul Kanda’s answers mean nothing to most Malaysians. (Full disclosure: Arul Kanda was also the school captain at our editor’s college)
Tony Pua (the guy who first brought all of this to light) stated that the answers from Arul Kanda do nothing to quell our curiosity but raise more questions and suspicions. And we agree, because we at CILISOS want to ask more questions as well.
So here are 6 reaally basic questions that should be answered by 1MDB to the rakyat.
1. Has 1MDB made any real money?
First, let’s define the term “real money”. Well, it’s money that came from actually providing a sale or a service. Meaning that it earned something by providing value to someone else.
A couple of news articles have pointed out that while 1MDB has been posting profits in their annual reports, these have not been due to selling or providing anything but from revaluation. Revaluation is basically the process of increasing or decreasing the value of assets ‘in case of major changes in fair market value of the fixed asset’ (click to read more).
How much of an impact does the revaluation have on the profits? Well, The Star reports that (as of 2014) 1MDB’s profits for the last 2 years have mainly been due to revaluation of their assets.
“For instance in 2013, 1MDB recorded a net profit of RM778.24mil, helped largely by property revaluation gains of RM2.7bil.” – The Star
Okay, but what about other profits? Has 1MDB made profits from anything other than the revaluation of their assets? So we tried looking for documents that talked about 1MDB’s profits.
First we found that Arul Kanda stated that the company’s earlier venture with a Saudi Arabian company called PetroSaudi had earned them RM1.78 billion. But then Tony Pua said that this money never came back to Malaysia. You can read how Tony Pua talks about where this money went here. So no real money there.
Besides that, news portal Malaysiakini has tried to obtain the financial reports of 1MDB’s profits but all they got were reports saying that there were profits. But honestly, what we want to see is what the profits are!
And aside from these two, nothing else. So the point is that we still can’t find any profit that was, in a sense, real.
2. Why did 1MDB invest so much money when it was already in debt?
Before we go into that, let us just clarify something with ugaiz. Contrary to popular belief, 1MDB is not a Malaysian sovereign wealth fund.
According to investopedia.com, a sovereign wealth fund is usually formed when a nation has excess money. Instead of keeping this money in the central bank (i.e. Bank Negara), a sovereign wealth fund utilises the surplus via investments.
(Ironically our other sovereign wealth fund, Khazanah Nasional, also doesn’t refer to itself as a sovereign wealth fund so we’re not entirely sure that we actually have one.)
1MDB’s official website states a major difference between them and a sovereign wealth fund is that a sovereign wealth fund is funded by the gomen and invests on its behalf. On the other hand, 1MDB, while fully owned by the gomen, raises and invests its own capital.
But for a company that has to raise and invest its own capital, to be RM42 billion in debt is a crazeeee situation to be in. How in the world does anyone even end up with a RM42 billion debt when you start off with nothing? As we’ve just talked about, 1MDB is NOT a sovereign wealth fund and has to raise its own capital.
So the thing here is, 1MDB did not have any capital to begin with.
In regards to whether or not investments companies generally borrow to invest, we spoke to a guy who wants to be known as FreeLunch, (a former auditor whom we last spoke to here and whom now we owe 2 free lunches) and he had this to say.
“Most funds don’t take debt to invest. One of the Norwegian funds use profits from oil sales to invest globally on behalf of the government.
Funds like hedge funds accept money from individuals/corporations to invest, generally no debt. Private investment funds like those run by rich families take on surplus funds and use it to invest.” – FreeLunch
Which basically means that investment companies rarely if not never invest using debt. So why did 1MDB invest on debt?
Do visit CiliSos for the rest of the article and questions.