1MDB: A renegade that has to be brought under control

By P. Gunasegaram

This jungle creature wonders if there is correlation between the current haze and 1Malaysia Development Bhd, which promised in a recent statement to “clear the air”. That statement did no such thing but made things hazier than the haze out there. Here are 10 questions 1MDB must answer well to pave the way towards blue skies.

Ever since it was set up in February last year, KiniBiz has been keeping a very close eye on developments at 1Malaysia Development Bhd or 1MDB. The first series of articles on 1MDB  was on unanswered questions over billions of ringgit.

This series appeared in March last year and represented the most comprehensive series of stories written on 1MDB up to that point, blowing the lid on the way it operated, outlining how billions of funds were in suspect investments and explaining how RM4 billion and more could have been siphoned off upfront through loan mispricing.

Less than a month later, in April 2013,  as more information unravelled from the one-year delayed release of 1MDB’s annual report for the year ended March 31, 2012, KiniBiz ran another series of articles highlighting further questions, including a new US$3 billion loan, movement of RM7 billion to Cayman Islands and an unexplained intimacy with US giant investment bank Goldman Sachs.

The release of its results for the year ended March 13, 2013, again more than a year late, in April this year saw KiniBiz writing another series on 1MDB explaining how a disaster is unfolding right before our eyes. The series, among others, highlighted that 1MDB would have made billion ringgit losses if not for gains from revaluation of property; there were RM1.2 billion in writedowns of power assets bought, a RM23.6 billion cash pile obtained from massive borrowings, etc. In short, an unfolding disaster.

In between all these, KiniBiz and others have reported on a myriad issues affecting 1MDB, including the latest round on high fees paid. Questions far outnumber the answers that are forthcoming.

If 1MDB truly wants to clear the air, here are 10 basic questions begging to be answered for a long time.

1. Why were your bonds badly mispriced? This is the way that most of the money is being siphoned off. By pricing what are effectively government-guaranteed bonds low, those who get the bonds at that price merely have to flip it on the market for a massive gain. KiniBiz calculations show that for the first few tranches amounting to RM20 billion, the mispricing is worth RM4 billion! How much more was mispriced for the subsequent loans which amounted to some RM17 billion? Perhaps another RM4 billion? Can we assume you allowed RM8 billion to be siphoned off upfront from loan mispricing?

2. Why did you pay such high fees for your loans? When your bonds were offered on such attractive rates, why was there a need to pay 10% or more to place these out when 2% or less is the norm? Who did these fees of more than RM400 million go to? Is this yet another means of enriching some people by siphoning off what belongs to 1MDB?

3. Why did you make such crazy investments with your borrowings? 1MDB is a strategic fund which is supposed to attract like investments into the country. Yet you are financing other people for investments they are making elsewhere and in quite dubious ways. Are even the funds you raise in inefficient and corrupt ways at risk and earning too low a return?

4. Why do you have so much cash and still borrow money? Your accounts as at March 31, 2013 show you have cash or near cash items of over RM23 billion. Why are you going on such a borrowing spree when the money sits there already earning very little? Is it because you have lucrative ways to misprice loans for the benefit of a few and want to exploit this to the full?

5. Why is most of your profit to date from property revaluations? If not for property revaluation gains of RM2.7 billion in the last available accounts you would have made losses. Basically, the gains came from revaluing cheap government land allotted to you to market rates. Does this not imply that despite RM37 billion in borrowings, you are still not getting enough on your investments and have to resort to this to show profits?

6. Why are you developing property when there is a glut? How strategic is property development when you basically get cheap land from the government and develop it, especially during a time when a glut is developing?

7. Why are foreigners involved in your property projects? Alright, you maintain land is strategic but why do you need foreigners as partners to develop this land? Can’t you just hire the best people money can buy and do it yourself? Then you can develop a masterplan, require developers to build according to plan and open out tenders to everyone. Are you using joint ventures so you can siphon out further value from 1MDB through these foreign partners? Is that not selling out our own country?

8. Why did you go into power? Power is about the only assets you bought which will have a steady recurrent income. But you paid way too much. Is that yet another way of siphoning money out of 1MDB? And is the purchase of power assets an attempt to quickly get cash generating assets which you sorely lack?

9. Why do you want to list your power assets? You obviously don’t need money going by your last balance sheet which showed cash and and near cash items at a whopping RM23 billion plus. That makes your desire to list the power assets rather strange. Is the awarding of a slew of power contracts to you a ploy to increase the value of your power holdings so that on listing you will have realised gains which can offset losses elsewhere?

10. Why are your accounts delayed yet again? This is the third time that we know off that your accounts have been consecutively delayed. Are you negotiating with your latest auditors — your auditors have been changed twice already — to give the best possible picture for your accounts? Come on, tell us, what are you trying to hide?

That should suffice for now. If 1MDB, our strategic investment fund, can give full and satisfactory answers to these pressing questions let them do so. Otherwise they must be simply regarded as a multi-billion ringgit renegade government company which has gone totally out of control, operating according to its whims and fancies and that is a danger to the country and its people.

Needless to say, although in this case Tiger feels even the most obvious must be said, 1MDB must be brought under control and made responsible to the rakyat.

GRRRRR!!!