Socio-economy / Umno & Barisan Nasional

1MDB confirms our suspicions were right

Kudos to 1MDB for replying the questions posed by Tun Dr Mahathir and by the rakyat. They have finally learned to answer the questions by themselves instead of relying on dodgy characters the likes of Salleh Keruak, Shahrir Samad and a myriad collection of cybertroopers with no locus standi to defend 1MDB.

To date, the official spokesperson is Datuk Sri Husni Hanadzlah, although he has gone quiet. Nevertheless 1MDB should be more proactive in answering the questions from now on.

And today, just a day after Tun Mahathir asked 1MDB some questions, they replied in their website on a few pointers.

For the sake of brevity, we shall  first discuss about the first two points from their press release because from the answers given, arose our curiosity to know more about it. And since it is in the interest of the public to be fully informed, we would like to get further clarification from them. Our questions are in the blue font. We tried to make them easy to understand.

1MDB stated:

1. Tun Mahathir claims that “PetroSaudi did not pay a single cent” in a joint venture with 1MDB.

  • PetroSaudi, via a subsidiary company, owned assets, comprising rights to oil fields in Turkmenistan and Argentina, worth approximately USD2.7 billion. These assets were sold by PetroSaudi to another subsidiary, “JV Co”, which at the time of the asset sale, was a company formed by and initially 100% owned by PetroSaudi for the purposes of a proposed joint venture with 1MDB.

1. The main issue here is related party transactions among PetroSaudi’s two subsidiaries, which begs the question, who transferred the assets to who? Was there any profits booked by PetroSaudi prior to passing it to the JV Co?

  • In return for the USD2.7 billion asset transfer, JV Co had to pay PetroSaudi USD700 million. This indebtedness resulted from the asset transfer. Accordingly, there was no loan made or “to settle”.

2. Indebtedness is a position when someone owes another person something, in this case the JV Co owes PetroSaudi USD700 million to transfer the asset, but why was this not included in the valuation of the assets to be injected into the JV Co?

3. What is this USD700 million for? Because USD700M/USD2.7B is only equivalent to 29% of the value of assets being transferred. At this point, this was still a non-cash transaction.

  • On 29 September 2009, 1MDB executed a joint-venture agreement with PetroSaudi. Upon completion of an independent valuation, 1MDB contributed USD1 billion of cash in return for 40% ownership of JV Co, and PetroSaudi was left with a 60% stake in the JV Co. In effect; 1MDB’s contribution was in cash, whereas PetroSaudi’s contribution was in independently valued assets worth USD2.7 billion.

4. This is where the USD1 billion cash from 1MDB came in to get 40% of equity. PetroSaudi with 60% stake and as confirmed by their statement above, PetroSaudi still did not for out any cash at this point of time.

5. Independent valuation of oil fields can be completed within just a few days? Which party verified the valuation to justify the injection of USD1 billion cash? Did 1MDB used their own independent valuer to value those rights to oil fields, or did they just rely on independent valuer hired by PetroSaudi?

  • It was part of the joint-venture agreement that, of the USD1 billion from 1MDB, USD700 million would be used to pay PetroSaudi for the initial asset transfer to JV Co (see above) whereas USD300 million would remain in JV Co. Upon satisfaction with the independent valuation, as per the joint-venture agreement, 1MDB made a payment of USD700 million to a subsidiary of PetroSaudi, and obtained legal title to 40% share of JV Co, a company with independently valued assets worth USD2.7 billion at the time.

6. Referring to 1MDB’s own statement in bullet point number 2 above – “JV Co had to pay PetroSaudi USD700 million”, it is the JV Co who should be paying PetroSaudi as 1MDB had no legal relationship with another subsidiary of PetroSaudi. If another subsidiary held the 40% share of JV Co, then wouldn’t from outset 1MDB is buying equity from another subsidiary of PetroSaudi, instead of injecting into the JV Co as per the JV agreements? Please clarify.

7. What were the business activities of this JV Co and the other subsidiary which justified 1MDB to pump in USD1 billion in cash and subsequently paid USD700 million?

  • Accordingly, PetroSaudi had full rights to the USD 700 million paid by 1MDB and these funds were for PetroSaudi to use, at its discretion.

8. PetroSaudi should have full rights to the USD700 million paid by JV Co, not by 1MDB!

Conclusion: Petrosaudi indeed did not pay a single cent for the JV Co and Tun Mahathir was right after all.

2. Tun Mahathir claims:  “suddenly, USD 300 million of the payment by 1MDB is converted to a Murabaha loan”. He further claimed “We really don’t know where it is”.

  • The joint venture with PetroSaudi was terminated in March 2010, with PetroSaudi assuming 100% ownership of JV Co. 1MDB converted its USD1 billion of equity in JV Co to murabaha notes issued by JV Co, under the terms of a Murabaha Financing Agreement. PetroSaudi, as 100% owner of JV Co, fully guaranteed JV Co’s obligations under the murabaha notes.

9. After just 6 months, this billion dollar business venture was terminated. Why? What were the business activities of this JV Co during time? 

10. So when 1MDB wanted to take their money out of the JV Co, did they not have to sell the equity to PetroSaudi as per the JV Co agreement 1st right of refusal? Under what conditions or mandate of 1MDB that it can lend money (murabaha financing) to a shell JV Co that it tries to get itself out from in the first place? Is 1MDB mandated to be a moneylender?

10. Basically, Petrosaudi group gets USD1 billion cash from loans 1MDB had to borrow, but 1MDB in return gets murabaha notes from the JV Co? Again, this begs the question, what business activities is this JV Co involved in to justify giving them loans instead of getting back the money?  

  • 1MDB then made further investments of USD500 million and USD330 million in additional murabaha notes issued by JV Co.

11. After termination of the business venture, why did 1MDB give more cash loans to the JV Co in return for the murabaha notes? What kind of investments is this JV Co involved in?

  • In total, 1MDB invested USD1.83 billion cash in murabaha notes issued by JV Co, a company that, by then, was 100% owned by PetroSaudi following the termination of the joint venture in March 2010.

12. USD1.83 billion or approximately RM5.8 billion was invested in that JV Co. From the period of March 2010 to June 2012, what did this JV Co do with the cash they were given/loaned to? Why should 1MDB gets murabaha notes in return?  

  • In June 2012, the entire USD1.83 billion amount invested by 1MDB in murabaha notes was repaid, by way of conversion into shares of Petrosaudi Oil Services Limited, for a value of USD2.22 billion.

13. What does this PetroSaudi Oil Services Limited (PetroSaudi OSL) do? How much % equity 1MDB now holds in PetroSaudi OSL? Is it a shell company too? Now the USD1.83 billion is revalued on paper to be USD2.22 billion, but is it legit?

14. Who was the third party valuer of this shares? Is it really worth USD2.22 billion or was it just an agreed amount decided between 1MDB and PetroSaudi OSL?

Up to this point the USD1.83 billion which 1MDB should get in cash as repayment, have been converted into shares instead. The cash of USD1 billion, USD500 million and USD330 million initially given to Petrosaudi group were now in the form of  share certificates of PetroSaudi OSL. 1MDB confirmed this in their point above.

15. From size perspective, this is a very large investment, what was the investment objective of 1MDB to accept the “conversion” into shares? Did 1MDB appoint any BOD member into PetroSaudi OSL?

16. PetroSaudi OSL was created in 2009. Was it a profitable firm? If it was profitable, why the need to sell it back in September 2012 as stated below?

  • In September 2012, 1MDB sold its shares in PetroSaudi Oil Services Limited for USD2.318 billion and received fund units in a Cayman registered fund. The Cayman registered fund is managed by Bridge Partners, a Hong Kong-based fund manager. These fund units were owned by 1MDB via its 100% subsidiary, Brazen Sky, and held through BSI Bank Singapore as custodian.

17. After just 4 months holding the shares, they now sold it? What kind of business musical chair of shares were they doing? Suddenly just after 4 months, the shares were revalued upwards to USD2.318 billion and kept by a subsidiary of 1MDB called Brazen Sky. Up to this point, people have got to ask, what kind of real business have 1MDB and PetroSaudi were doing up to that point of time?

18. How long has this Cayman fund been launched? Is this a closed investment scheme, is it a hedge fund, what is the historical returns and the liquidity of these funds?

19. Why did 1MDB accept the settlement in the form of units instead of units presumably originating from PetroSaudi assets? Did 1MDB not get back to square one when they wanted to get out of the JV Co holding some “assets valued up to USD2.7 billion”?

20. Is this the same assets as the first USD2.7 billion that they got themselves into in the first place? Can you, 1MDB share with us the portfolio report from BSI Bank on the marked to market value of the fund, its returns if any and what ever terms and condition attached to 1MDB liquidating them?

Now we hear that the balance of these units are to be sold back to PetroSaudi in return of providing the USD1 billion by June 4th. Does this imply that these units are worthless to the open market and only PetroSaudi will buy them? 

  • Accordingly, 1MDB invested a total of USD1.83 billion with PetroSaudi (initially as equity, then as murabaha notes), and ultimately owned USD2.318 billion of fund units i.e. a gain over time of USD488 million.

21. You put in USD1.83 billion of cash and had to pay interests on loans for it, in return you are proud to get a paper profit of USD488 million?

22. If you managed to get out of the JV Co in the first place you would not need to go out and borrow that much in order to purchase the IPPs or the lands, tell us what is your cost of fund (inclusive of fees paid to all) vs the actual return on these investments?

  • The facts detailed above can be verified by reference to the notes to the audited financial statements of 1MDB dated 31.03.2010, 31.03.2011, 31.03.2012, 31.03.2013 and 31.03.2014.

23. 1MDB’s auditor, Deloitte stated that all these “investment held for sale”, including its shares in the Caymans, as Level 3 – the lowest of three levels of assets in the fair value accounting hierarchy.

24. To add, regarding another investment 1MDB made – the 1MDB GIL, after X number of years of not getting your money back from PetroSaudi, you then agreed to invest further into another JV Co with PetroSaudi, can you also share with us the “Investments” made by 1MDB GIL, and are these investments involves buying PetroSaudi “assets” again? (errata: This question is supposed to be regarding the Aabar/IPIC investments, which we may discuss in the future. 1MDB is indeed a confusing ball of mess. Apologies.)

Conclusion: Tun Mahathir was wrong on the figure, it was not USD3oo million but in actual fact it is USD1.83 billion! And we do not know where the cash has gone to after getting units in return.

1MDB are just using wordplay to counter the questions with answers that didn’t really answer the question. In fact, their replies created even more questions!

The rest of their points stressed on semantics, not substance. Wordplay like – Ananda Krishnan did not give RM2 billion to pay interests as Tun Mahathir had claimed, but to pay loan to lenders. Same difference.

Also, Tun Mahathir said the interests come about to almost RM3 billion and they answered with, “the figures being quoted by Tun Mahathir are incorrect. To be clear; the interest cost on RM42 billion of debt by 1MDB as of 31.03.2014 was RM2.4 billion. The person written this must be a joker.

Then they said, Goldman Sachs was not the one raising the sukuk bonds but it was AmBank when all sundry know Goldman Sach is involved in another fund raising venture for 1MDB. Same difference.

Again, they stressed on form instead of substance when they corrected the figure of RM320 million of land purchase to RM230 million. They just corrected the figure but failed to answer the question.

These are all diversions in order to say that they have answered all questions when in fact, they have not. Hopefully 1MDB can clarify the questions above.

Thank you.

You might also want to read:

1) On IPP – http://dinturtle.blogspot.com/2015/06/hot-1mdb-mengaku-ipp-dibeli-hampir.html

2) On the USD1 billion money trail – http://www.themalaysianinsider.com/malaysia/article/1mdbs-first-us1billion-money-trail

3) On PM Najib’s FAQ – http://ffrreeddiiee.blogspot.com/2015/06/1mdb-dato-seri-najibs-fqa-frequently.html

23 thoughts on “1MDB confirms our suspicions were right

    • Slowly the facts are coming out. There was Cabinet approval for RM5 billion loan by Ambank. But there was no Cabinet approval for the 36 billion loan by 1MDB.
      As a privately setup company with only 1 million paid up capital, 1MDB should be responsible for 1M only if sued.

      The cabinet Ministers could not be expected to shoulder responsiblity when they were not part of the decision making in the RM3 billion commission to Goldman Sachs or 25 billion the buying back UMNO owned licenses from Indian Ananda Krishnan and China man gambling co Genting.

      Why the 1MDB directors choose to pay 18 billion cash to Ananda KRishnan, Goh Tong is because someone gain some profit somewhere.

      The logical and rational way is to nationalised the IPPs through the least costs and not paying cash to ananda 8.5 billions plus debt 6 billion.

      IF these transactions are not approved by the Cabinet then the Malaysian Government cannot be hold to ransom as guarantors.

      If these are illegally done with fraud intention then these buyout MUST be cancelled. The 42 billions are still in the country in Ananda Krishnan and Genting account. As Najib and Ahmad Husni said the 42 billlions are still there!

      These can be frozen. Ananda Krishnan should be queried why he agreed to sell.

      Even the money to Gold man Sachs can be frozen if elements of profiteering and fraud exists.

      WE CAN GET OUR 42 BILLION BACK.

      Get it back from Ananda KRishnan, Genting, Ambank, Goldman Sachs…etc..

      Why is Najib mati matian defending 1MDB? Who is the master mind behind 1MDB?
      Its non other than that Nazir lah muahaha

      read Malaysiakini.

      Shahrol had a stint with Accenture Malaysia’s public service practice, and had spent more than a decade doing IT transformation and integration.

      In addition, he played a role in the merger of Sime Darby, which lead to the creation of the giant plantation company it is today.

      On that note, he has also led transformation programmes at the Employees Provident Fund before

      SHAROL the CEO of 1MDB is the henchman of Nazir during Sime Darby biggest plantation company saga!!1

      That is why Nazir is angry with 1MDB directors for letting Najib take the blame alone.

      Like

  1. Sir,

    I salute you for very clear analysis of the 1MDB fiasco.

    It is proven beyond reasonable doubts that indeed there is CBT involved.

    I wish you selamat menyambut bulan ramadhan. Semoga all those culprits would be brought to justice

    Wallahuaklamb

    Like

  2. Petrosaudi was and still is a con job, crooked from the start. It was initially claimed that it was a state company. But alas, all it was was a sdn bhd only. That was a real joke since the arab had pulled a fast one on a bugis. I Think what petrosaudi gave 1mdb were toilet papers laced with arab shit that seems to make out the letters of I O U. Now at the the end of the day, who would want some arab shit stained toilet paper? najib is brain dead. That is how stupid he is. I say stupid because he thinks his half baked answer coming out from unholy asses will fool people. But he is also a badass. This web he created to loot and plunder is also so very intricate. One hopes a doctoral candidate do a topic on ethics and use 1mdb and government of malaysia under bugis najib as samples

    Like

  3. Either way you turn it, the money is not there. Its just “air liur”

    You invested with lot of cash, yet you received units or guaranteed papers ? How are you going to expand your business ? You claim cash but not enough to service interest. How to post your profit in the balance sheet ?

    Next is to develop TRX and Bandar Malaysia. Hell a lot cash very soon or maybe another superstitious deals?

    1MDB supposed to be in straight forward capital and assets investment and management. Buy ready entities that would generate yearly income, that already in operation. Sadly, where is the income to compensate such buys ? Yet the values of the “buys” far exceeded the right price. Where is the profit then ? Another twenty years in red ?

    Yes, it surely beyond our suspicious and the next superstitious mind. Only PM Najib knows to make his baby, yahudi, majusi, nasrani or Islam. He.he..

    Like

  4. Pingback: Seeing light at the end of the tunnel | The "thirteen million plus Ringgit" guy rambles....

  5. Dear JMD

    Bless you for providing enlightenment for the ordinary folks.

    May you be justly rewarded. Thank you.

    Selamat berpuasa.

    Like

  6. This confirm Malays dunno how to do business. Kena con left right and center. Then ask non bummies pay more money for taxes.tax payers are penalized, non tax payers are rewarded with BR1M. HP6. Haprak, 3/4 , suka sulka

    Like

  7. It’s mind boggling. But questions remain unanswered. Where is the money now? What is the real business 1MDB was involved in? Have the Arabs taken 1MDB for a ride? Or our smart asses have teamed up with the Arabs to fleece the country? …and many more

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  8. Pingback: 1MDB confirms our suspicions were right | ajai62

  9. Added a new article in TMI. Should appear tomorrow entitled “Rubbishing 1MDB’s rebuttal”

    Your old friend
    Wenger J. Khairy

    Like

  10. Dear sir,

    Thank you for this straight forward and easy to understand article about 1MDB. Gotta be honest, I was ignorant about this before.
    But you put such effort in making us understand I now convince that this 1MDB is very serious.
    PM must really resign because 1MDB is the symbol of his leadership
    failure.

    Like

  11. Pingback: 6 reasons why everyday Malaysians tak kisah about politics anymore | CILISOS - Current Issues Tambah Pedas!

  12. Pingback: Perjanjian JV 1MDB-PetroSaudi DiDedah ! PELIKnya Dealing ni …. | Berita Malaysia

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