By Khairie Hisyam
Self-styled strategic development company 1Malaysia Development Berhad (1MDB) cries foul on the latest Wall Street Journal (WSJ) report which said it may have sent US$850 million (RM3.7 billion at today’s exchange rates) to the wrong company last year.
In a statement, 1MDB said the article, published Dec 17, contains allegations that are “simply a regurgitation of old claims carried by the Wall Street Journal in September, which it has re-written and re-published without offering any new information or evidence”.
WSJ reported on Dec 17, citing wire documents and sources, that the US$850 million went via three transactions to a British Virgin Islands-registered company called “Aabar Investments PJS Ltd”. It was incorporated on March 14, 2012 and liquidated on June 23, 2015, said WSJ.
The name bears close resemblance to Abu Dhabi-registered Aabar Investments PJS, a subsidiary of 1MDB’s business partner International Petroleum Investment Company (IPIC).
In its statement 1MDB did not explicitly deny that these three transfers took place as alleged by WSJ.
Notably in April IPIC’s managing director, Khadem Al Qubaisi, was dismissed from his post by a presidential decree, according to WSJ. The new management team at IPIC had been examining Al Qubaisi’s activities at the company since, said WSJ.
The US$850 million is part of a mystery revolving around monies totalling US$2.4 billion 1MDB said it had paid IPIC but which the latter did not receive, reported WSJ in September citing sources familiar with the matter.
The payments concern IPIC’s involvement in 1MDB’s two US Dollar bond issuances in 2012 to finance its acquisition of power assets. IPIC co-guaranteed the bonds and received US$1.4 billion in refundable security in return.
IPIC also received options to acquire up to 49% equity in the power assets, which was granted to its subsidiary Aabar Investments PJS. These options were later extinguished for US$993 million, according to 1MDB’s books.
However 1MDB still owed IPIC some US$481.3 million (RM2 billion) as at June 30, 2015, according to IPIC’s latest available financial statement which was released on the London Stock Exchange on Dec 8, 2015. It remains unclear whether this amount is part of the US$993 million or whether payment was only remitted after June 30.
IPIC is an Abu Dhabi government investment vehicle set up to invest in energy and energy-related industries globally.
‘Surprising timing’
In its statement, 1MDB claims the article is part of WSJ’s “campaign to malign” it and accuses some media and politicians to be “seemingly intent” on derailing its rationalisation plan.
“It is interesting that a number of opposition leaders and publications openly sympathetic to the opposition republished and commented on this latest article barely minutes after it was published, raising questions as to whether this too is part of a broader orchestrated campaign against 1MDB,” said 1MDB.
“The timing of the article also raises questions, coming as it does at a time when 1MDB has made significant progress with its rationalisation process, as reflected in the successful execution of a Share Sale and Purchase Agreement with CGN Group, and the impending selection of a preferred development partner for its Bandar Malaysia project,” it said further.
The uncertainty surrounding payments to IPIC is one element in a wider controversy around 1MDB, which has raised some RM42 billion in borrowings that it is struggling to repay.
To rationalise its debts, new chief Arul Kanda rolled out a debt rationalisation plan in February this year that involves selling its power assets and monetising land holdings.
On Nov 23, 2015, 1MDB inked a sale agreement to sell its power assets to China General Nuclear Group for RM9.83 billion, a deal which will relieve it of some RM17 billion in debts as China General Nuclear will also take over some RM8 billion in associated debts attached to the power assets.
1MDB is also finalising the sale of 60% equity in its currently wholly owned Bandar Malaysia Development. It previously said it has shortlisted final bids and is expected to announce the successful bid soon.
Strong relationship
While 1MDB did not deny the transfers alleged by WSJ in its Dec 17 report nor address why IPIC reportedly did not receive the payments it said it made, 1MDB stressed that both companies continue to enjoy a “strong business relationship”.
This can be seen in the execution of a binding term sheet on May 28, 2015 between IPIC, its subsidiary Aabar Investments PJS, 1MDB and its sole shareholder the Ministry of Finance, said the company.
The deal will see IPIC extend US$1 billion in cash to 1MDB, which 1MDB will use to repay the US$975 million loan. This cash provision is not a loan, said 1MDB president and group executive director Arul Kanda previously.
IPIC will also assume all interest payments under the two bonds amounting to US$3.5 billion, which it co-guaranteed, from June 4, 2015 onwards. It will also receive a transfer of assets equivalent to US$1 billion in value by June 30, 2016, after which it will directly take liability for all payment obligations under the two bonds as well as forgive certain financial obligations of 1MDB towards it.
“Furthermore, IPIC has since reaffirmed its commitment to working with 1MDB via a public statement issued in October 2015, and made interest payments on the aforementioned bond in October and November 2015,” said 1MDB.
In May Second Finance Minister Ahmad Husni Hanadzlah said the deal will reduce 1MDB’s debts by RM16 billion.
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