This is a simple article. Please do not be intimidated by reading it. It’s a story of how billions of ringgit which came from bonds guaranteed by the Government, ended up being a worthless paper trail.
Perhaps you can share this story with your friends.
Once upon a time in 2009, 1MDB obtained RM5 billion from a bond issue called the Islamic Middle Term Notes. This amount is guaranteed by the Malaysian taxpayers (aka the Government) should 1MDB fails to repay the amount. (source)
As the name suggest, this bond must be used according to Shariah principles and the assets purchased must be endorsed by a Shariah Adviser. (source)
1MDB announced in 2009 that they will use this money to “participate in business and economic opportunities which result in the enhancement and promotion of the future prosperity and long-term sustainable economic development of Malaysia.” (source)
In other words, the taxpayers of Malaysia is guaranteeing a debt of which the money must be used by 1MDB to invest in Shariah compliant assets which could trigger a prosperous and sustainable economic development in Malaysia.
Is this simple enough to understand? Good.
All seems great at that time, but what the public and the financial regulatory bodies such as Bank Negara Malaysia and Securities Commission didn’t know was, 1MDB had other intentions in mind. (source)
It turns out, from the period of 2009 to 2011, a total of USD1.83 billion of our money was given to an obscure company which had no track record whatsoever prior to 2009. (source)
How and why the Malaysian Government entered into an agreement with a company with no track records and no discernible assets is baffling. And why they agreed to give them billions is even more so. (source1, source2, source3)
Furthermore, public records have shown that USD700 million (approximately USD3 billion in current currency rate) out of the USD1.83 billion cash given, was transferred into a company called Good Star Ltd. This was never denied by anyone. Is sending money to Good Star Ltd in compliance to Shariah principles? What is their business activity which merited them to be given USD700 million of taxpayers money? (source)
Anyway by 2011, the cash USD1.83 billion was recorded as a loan to PetroSaudi. We don’t know what they do with the cash since the joint venture was terminated a year earlier in 2010, barely 6 months after it started. Usually when a joint venture was terminated, logic dictates that 1MDB must get all of its money back as soon as possible and invest it somewhere else more economically substantial. But 1MDB did the most crazy thing – continue loaning them money. (source)
1MDB even had the audacity to say that the money given to PetroSaudi can be used at that company’s discretion and they have full rights to do as it please. (source)
Basically, our taxpayers’ money which should have been used to develop Malaysia according to Shariah principles is being treated like a foreign company’s personal fund. We taxpayers must not question it.
Now by 2012, this loan to PetroSaudi which started from a failed joint venture business, was transformed into a 49% equity stake in PetroSaudi’s subsidiary worth USD2.22 billion. The USD1.83 billion was actually revalued upwards to USD2.22 billion. There was no cash profit at this time, only revaluation on paper. USD2.22 billion (approximately RM9.5 billion in current currency rate) is roughly as big as Sapura Kencana’s share capital. But 1MDB owned this company with such ease, coming in and out of it in barely four months. First they owned 49% of it in June 2012, then they sold that huge chunk of equity in September 2012. (source)
That huge chunk of equity was transformed yet again into ‘promissory notes’ when 1MDB sold their equity holding to an obscure fund management company called Bridge Partners from Hong Kong for USD2.318 billion. There was no cash changed hands. Only assets on paper. (source)
Let’s recap what we have so far. From cash obtained through Shariah debts, the taxpayers’ money has now become ‘promissory notes’. There goes the initial objectives of prospering Malaysia through sustainable economic development in Malaysia. The actual physical money has gone into Good Star and PetroSaudi.
1MDB now realised it has a few papers called promissory notes in its hands. They could not exchange it for real money anywhere in the world. So it then gave the ownership of those notes to its newly created subsidiary called Brazen Sky. Brazen Sky then gave those promissory notes to Bridge Global Absolute Return Fund to be ‘invested’ in Cayman Islands in the form of fund units. And now it seems, even Bridge Global did not have the necessary licence, or did not even exist when the transaction happened. (source)
No wonder the whole Ministry of Finance including 1MDB’s clueless new boss were confused about this whole dodgy transaction. Was it cash, was it paper assets, or was it units? They themselves were confused by their own sneaky endeavours.
Now the USD2.318 billion question is, does the fund units have value? The answer is no and here’s why.
1MDB’s previous auditor (KPMG) had refused to sign off the accounts unless 1MDB can give proof of their marketable value. 1MDB could not. KPMG was sacked because they did not want to sign off the accounts. 1MDB then had to appoint another auditor (Deloitte) and had to ask their other partner in crime (Aabar/IPIC) from another joint venture to guarantee those units. Only then the new auditor was comfortable enough to sign it off. (source)
To put matters into perspective, this is akin to putting your RM1,000 into an ASB unit trust account but after some time, you can’t be sure if RM1,000 is still there, you simply had to get a third party to guarantee it! (source)
But some deluded people are saying that this is a good thing and that the very act of guaranteeing the units confirmed that those so called billions of units were not worthless. Perhaps they should look up for the words ‘guarantee’ and ‘guarantor’ in the dictionary. Perhaps they are out of their mind. If you hear anyone is saying these units have value and is profitable, please do not employ them anywhere in your company. Otherwise all your company cash might end up as units too! Then you are going to have an icky situation of paying staff salary using units instead of cash. If your staff ask ‘what are these units?’, just casually tell them, ‘they are units, just units’. (source)
Note that in exchange for rescuing 1MDB many times, IPIC will be given assets belonging to 1MDB by June 2016. What these assets are, 1MDB and its lackey the Ministry of Finance have not answered to the public. Do you think IPIC will just help you (the taxpayers) for free? (source)
KPMG was right in not signing off those accounts while those vague USD2.318 billion worth of investments is left pending and unverified. They seriously do not want to follow the footsteps of Arthur Andersen accounting firm in the Enron financial fiasco. There are many instances when Audit Firm were caught colluding with their clients just for the sake of not losing the audit fee. (source)
There are other equally dodgy matters that had crept out due to the bungling of this so called ‘units’ that happens in the period of 2014 to 2015. But we shall save it in another simple story later.
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