Is this the beginning of the end of UMNO?
By Matthias Chang – Future Fast-Forward
Let me say from the outset that I am not well versed in accounting and or international finance, like those personalities connected with 1MDB who have impressed the rakyat that they have such expertise as they have borrowed RM42 Billion and made huge investments overseas.
Nevertheless, as a layman applying common sense, I am much perturbed and even more anxious than before, after reading the explanation by the current President and Executive Director of 1MDB Mr. Arul Kanda on the use of the RM42 Billion loan by 1MDB.
Looking at the Table provided by 1MDB, I am sure that there are Malaysians not well versed in accounting and financial matters who may well say and conclude that the Prime Minister, the members of the Cabinet, the Board of 1MDB have finally come clean and revealed the true state of affairs of 1MDB and from the figures disclosed, there are no financial irregularities or crimes committed.
Nothing can be further from the truth. The Table of Figures is typical of experienced dishonest accountants to give financial data to suggest and direct the reader to a pre-conceived conclusion but, in actual fact shields the observer from the underlying truth.
This is also the classic modus operandi of magicians such as David Copperfield. Recently, Astro broadcasted a show whereby a masked magician exposed the tricks of magicians in creating illusions. Without exceptions, all the illusions were created by simple tricks. The magician and his entire team are involved in creating the illusion. The magician, on his own cannot, I repeat cannot on his own, create the illusion. The entire team must execute the illusion, for if and when any one member opts out and or make any mistakes in the execution of the illusion, it will be the end of the magic show and the illusion.
Let’s examine and analyse the Table of Figures provided by Arul Kanda.
Item 1 of Table - Total Cost of IPPs
RM18 billion for purchasing independent power producers
- RM8.5 billion for Powertek
- RM2.3 billion for KLPP
- RM1.2 billion for Jimah
- RM6 billion inherited debt
When anyone purchases any business, he is only willing to pay a price that reflects a fair value of the said business i.e. all the assets less all the liabilities and in some cases, an additional sum representing a premium for the “goodwill” of the said business (e.g. a brand has a special value).
Looking at the above figures, we are asked by Arul Kanda to make certain assumptions without having him to provide all the relevant details, the details of which are precisely what the Rakyat wants to know from the Prime Minister and 1MDB.
Thus, we can conclude that the price paid by 1MDB for the 3 IPPs is RM18 Billion reflecting the value of their assets before deducting liabilities of RM6 Billion.
If so, how did 1MDB arrive at such a high value of RM18 billion? In actual fact 1MDB is paying RM18 Billion for the IPPs!
Is this not an over valuation of the assets?
If the assumption in Question 1 is incorrect, does it mean that after deducting the liabilities of RM6 Billion, the acquisition price for the 3 IPPs is RM12 Billion (i.e. RM18 Billion less RM6 Billion)?
Even at this adjusted price of RM12 Billion is it a fair value for the acquisition?
What is more important is that we do not know from the set of figures whether the “inherited liabilities” of RM6 Billion is inherited from all the three IPPs in various proportions or whether the RM6 Billion was inherited from just one IPP or two IPPs to enable an observer to determine the fair value of the purchase price for each of the IPP. Can 1MDB justify their actions?
What is most puzzling is how the IPP (whether 1 or more) could have, after all the years of operations, such a humongous liability on their books amounting to RM6 Billion when it is nearing the completion of their IPP contracts?
What is the explanation?
The IPPs were privatised entities and what the rakyat needs to know is, Who are the creditors for this RM6 Billion shit hole? Are they local or foreign banks? The Rakyat demands to know the names of all the financial institutions exposed to this financial shit hole!
When 1MDB, in acquiring these IPPs assumed this huge liability, is this not a bailout of the IPPs (one or more) thereby placing on the taxpayers the ultimate responsibility for the bailout?
Under the terms of this liability (i.e. loan extended to one or more of these IPPs) the rakyat needs to know what were the duration of these loans and what interests have accrued and what interests are payable in the future and how this liability would be liquidated? If it has been liquidated, when? If it is still on the balance sheet, how would the cash flow of 1MDB or the IPPs to be generated to liquidate this debt?
It is also obvious to any layman, that the cash flow of one or more of the IPPs could not have been sufficient to finance the repayment of this RM6 Billion liability. That being so, this factor alone would be the “Alarm Bell” or the “Red Flag” that the valuations referred to above cannot be justified at all. This is scandalous.
The Board of 1MDB are made up of experienced financial figures, supervised by top officials of the Ministry of Finance (MOF) and of course under the able leadership of the Prime Minister cum Finance Minister. So, please tell us, the simple folks of Malaysia, how can 1MDB get into this Big Financial Shit Hole?
The rakyat demands to know whether any Minister who attended the marathon “Special Meeting” on Tuesday night asked the above questions. If not, why not? If yes, what were the answers given by the 2nd Finance Minister?
It is clear from the press conference of certain ministers that they are gloating to convey the impression that all is well and that they have delivered the so-called knock-out punch to Tun Mahathir Mohamad and other critics. Let me say here and now, it is not even a jab and even if it was, it missed the target by a mile!
The actions of 1MDB and the relevant ministers have stirred not only just one hornet’s nest, but every hornet’s nest in the country. It is going to be a season of hornets’ stings!
Item 3 of Table – Total Investment Costs
RM15.4 billion for investments funds
- RM6.1 billion in Brazen Sky
- RM4.2 billion in Aabar Investment Deposit
- RM5.1 billion in GIL Funds
The above three items have been classified as “investments” and the costs incurred for the said investments.
Is RM6.1 Billion the original “subscription” value of the investment in a Special Fund in the Cayman Islands or in some other jurisdiction? If it is the latter, where?
Brazen Sky being a subsidiary of 1MDB, what is the share-capital of this company? And who are the directors of this company?
How much of this RM6.1 Billion investments have been redeemed and if so, how much of the redeemed monies were utilised and for what specific expenditures and when were they incurred?
The rakyat has been informed by Arul Kanda that Brazen Sky has an account with the BSI bank in Singapore and he has blatantly and arrogantly announced that a sum of US$1.103 Billion in cash was “redeemed from the Cayman Islands” being the 2nd tranche of the “investment” in the so-called “Bridge Global Absolute Return Fund”.
The rakyat needs to know, when Arul said that he saw documents showing the transfer of cash to BSI bank, what were these documents?
The Prime Minister in March confirmed that US$1.103 Billion was so deposited in the BSI bank in Singapore. The rakyat demands to know, what was the basis for the Prime Minister to confirm that indeed cash was deposited with the bank?
The rakyat demands to know whether, the Prime Minister “amended” his March statement because of the denial by the BSI bank in Singapore that no monies were deposited with the bank in Singapore?
Are these documents the “redemption form” as required under the terms of the Fund? Was there either a telegraphic or wire transfer from the Fund in the Cayman Islands to BSI bank as is required by the Fund? Was there a BSI bank statement to show that US$1.103 Billion was so deposited?
If these are not the critical documents, what documents did Arul Kanda rely on to support his assertion that cash was deposited in the BSI bank?
Was this so-called US$1.103 Billion cash pledged to the consortium of banks headed by Deutsche bank to secure the US$975 million loan?
Can anyone in 1MDB or MOF state categorically the nature of the security documentation that was offered to the consortium of banks – a Pledge, a Facility Letter, a Debenture or an Assignment?
The Prime Minister has stated to Parliament in May that no monies were in fact deposited in the BSI bank in Singapore, but what were deposited were paper assets after the BSI bank denied monies were deposited. This was followed up in a press statement by the 2nd Finance Minister that these paper assets were “units” without explaining what are these units and their actual value.
Therefore, the rakyat demands to know, were these “units” redeemed and transferred to BSI bank in Singapore in accordance to the terms of the Fund in that the Fund has at its discretion of transferring instead of cash, title to assets (such as these “units”) in the assets of the Segregated Portfolio under their management?
Would the transfer of these “units” signify that the said Fund was illiquid and or that the units were not saleable? Have these “units” being used as security for the US$975 million loan extended by the consortium of banks, headed by the Deutsche bank?
Can 1MDB or Arul Kanda or the Prime Minister show to the country the documents that relate to the transfer of these “units” to the BSI bank in Singapore?
What is the value in US$ of RM of these “units” now deposited in the said bank?
Who authorised the transfer of these “units”?
Why have not these units being liquidated so that the cash generated can be used to repay existing debts without the need to borrow from the Arabs?
Arul Kanda said, following the press statement by the 2nd Finance Minister that there was a binding agreement between 1MDB and IPIC and Aabar Investment (the Arabs) to advance a sum of US$1 Billion to repay the outstanding sum due to the consortium of banks led by Deutsche bank, that the US$1 Billion is not a loan or a bailout. What is the nature of this transaction?
Is the US$975 million (approximately RM3.510 Billion, assuming exchange rate of RM3.6 to US$1) for the cancelling of the option given to the Arabs, part of the existing RM42 Billion?
What are the terms and conditions agreed between the Arabs and 1MDB for this so-called financial transaction which is not a loan or a bailout?
Were there any condition precedents to the disbursement of the US$1 Billion?
It was stated by the 2nd Finance Minister that the so-called “Units” would come under the agreement between the Arabs and 1MDB. Can the Prime Minister, the 2nd Finance Minister and 1MDB explain the nature of this future transaction – are the “units” to be sold to the Arabs or used as a security?
With regard to the deposit with Aabar, what are the terms and conditions regarding this “deposit”?
What are the terms and conditions for the redemption of this RM4.2 Billion deposit? Is this deposit an interest bearing deposit and if so, who would be entitled to the interests accrued on the deposit? If it not an interest bearing deposit, why is it sitting in some bank generating nothing to 1MDB?
Pending the redemption of the deposit, can Aabar used the deposit in anyway such as to re-hypothecate the deposit to finance Aabar’s financial activities and or used as a security for Aabar’s liabilities?
Under what circumstances can Aabar forfeit this deposit, if such a right to forfeit is given under the “Deposit Agreement” or any other agreement?
With regard to the RM5.1 Billion in the GIL Fund, what is the nature of this investment? Is this a direct investment by 1MDB or an investment through one of its subsidiaries?
What are the terms and conditions governing this investment? Is it similar or totally different from that of the investment in the Bridge Global Absolute Return Fund in the Cayman Islands?
What is the current status of this investment and its residual value (if any)?
What are the terms and conditions for the redemption of this investment in the said Fund?
Who authorised all the above three investments? Is it the Prime Minister himself?
Was Bank Negara’s approval obtained for these investments?
Tan Sri Zeti, the Governor of Bank Negara said recently, that any resident entity, including 1MDB, that makes investments abroad or obtains offshore borrowings under Section 214 of the Financial Services Act 2013 and under the Exchange Control Act 1953 that was in force prior to 2013, must get Bank Negara’s approval.
Additionally, all investments that exceed RM50 million per calendar year and any offshore borrowings that exceed RM100 million by resident entities require the central bank’s approval.
That being the case, the rakyat demands to know whether 1MDB or its subsidiaries have complied fully with all the requirements for approval by Bank Negara? Given the public pronouncement by the Prime Minister himself that US$1.103 Billion was parked in Singapore to avoid adhering to Bank Negara’s requirements as to any remittance made by Brazen Sky, can Bank Negara tell the rakyat whether the action of 1MDB as well as the Prime Minister have contravened any statutory legislations as well as any foreign statutory legislations?
If there are contraventions by 1MDB and the Prime Minister, what action can be taken against them and what penalties can be imposed on them?
Tan Sri Zeti has announced that Bank Negara Malaysia (BNM) has launched a formal inquiry on the debt-ridden strategic investor 1Malaysia Development Bhd (1MDB) for any contravention of the central bank’s rules and legislation. She also said that,
In accordance with the legislation administered by BNM, there are three developments that will trigger formal investigations -- when monies for which approvals are given are not used for the purpose indicated in the submission; when incorrect or false information is provided in the submission; and failure to comply with the conditions in the approval.
Given that there are on-going investigations by Bank Negara, there must be prima facie evidence of such non-compliance as without which no investigations can commenced.
Given the seriousness of the nature of the investigations, that on conviction a fine of up to RM50 million or up to 10 years in prison or both can be imposed, does the Governor intend to recommend, that pending the completion of the investigation, the members of the Board of 1MDB should be suspended and that the Prime Minister take immediate leave to ensure that there would be no political interference of the said Bank Negara’s investigations?
Given this financial scandal, which is now a subject matter of Bank Negara’s criminal investigations and it has now become a systemic threat to the entire economy of Malaysia, will Parliament move a motion for a special debate on this catastrophe created by the Prime Minister and aided and abetted by the morons in the Cabinet and in the UMNO Supreme Council?
In similar situations at the corporate, government agency, or NGO levels when such a scandalous situation has arisen are not the accused persons suspended pending the completion of the investigations?
If we need a precedent and there are many e.g. the entire Sime Darby Board resigned save for the thick skinned Chairman following allegations of financial misconduct to ensure transparency and accountability, should not the same be demanded of 1MDB and the Prime Minister?
Therefore, the RM Trillion question that the rakyat is asking is, Should not the Prime Minister cum Finance Minister and the Chairman of the Advisory Board of 1MDB take leave and hand the reins of the government temporarily to his Deputy so that the financial fiasco posed by 1MDB would not destroy the credit standing and integrity of Malaysia?
Item 4 of Table – Financial Expenditure
RM5.8 billion for financial expenditure
- RM4.5 billion for cost of finance and working capital
- RM0.9 billion for foreign exchange cost
- RM0.4 billion for taxes
How can RM4.5 Billion be the operating costs at the HQ (i.e. 1MDB Level) alone when its subsidiaries have their own operating costs? The Table of Figures given by Arul Kanda with regard to Financial Expenditure refers only to the holding company (1MDB Level). And it is just an investment holding company with minimum operations unlike their acquired subsidiaries such as the IPPs which are full fledge on-going businesses.
No explanations have been given as to the huge foreign exchange loss.
Were these exposures hedged to minimise such potential losses which have now occurred as would be the usual prudent way to conduct the business?
Item 2 of Table – Total Land Cost
RM1.7 billion for purchasing land
- RM0.2 billion for Tun Razak Exchange land
- RM0.4 billion for Bandar Malaysia land
- RM1.1 billion for Air Itam Penang land
Why was such preferential rate given to 1MDB to purchase the Tun Razak Exchange and Bandar Malaysia lands?
Tabung Haji is a 100% Muslim / Bumiputera Pilgrimage Fund to aid pilgrims to fulfil their Holy duty to perform the Haj.
Why was Tabung Haji not given the same preferential treatment when, what it acquired was just a small fraction of the Tun Razak Exchange land?
Why was the asking price from Tabung Haji almost equal to the total purchase price paid by 1MDB for the entire Tun Razak Exchange land?
What was the rational for 1MDB to make such a huge windfall from Tabung Haji whose sole objective is to manage the funds of Muslims to assist them to perform their pilgrimage to Mecca?
Given that the two pieces of lands, namely the Tun Razak Exchange and Bandar Malaysia would be monetised (i.e. sold to pay off the huge RM42 Billion loan), there would be nothing left for the rakyat as 1MDB would not be able to realise its original objectives as a sovereign fund, using these lands to generate profits for the country.
Given that 1MDB is also required to provide massive infrastructural support for the entire development, where and how 1MDB can fund this additional burden?
Can 1MDB assure the rakyat that after the sell down of the two property assets, the proceeds of the sale would be sufficient to pay off the RM42 Billion loan?
RM1.1 Billion was used to purchase the Penang land which is presently occupied by a huge number of families (whether they are squatters or tenants).
What would be the ultimate costs to obtain vacant possession in order to proceed with development?
Therefore, would 1MDB agree that the total cost for the purchase would exceed RM1.1 Billion?
In the event, there are difficulties in obtaining vacant possession, what would be the holding costs for the purchase, as prior to the said purchase, the Vendor could not obtain vacant possession to develop the said land?
Was there an assumption by 1MDB that the State Pakatan Rakyat government (the Opposition controlled government) would in fact assist 1MDB in getting vacant possession for the development of the land, when such an issue is a hot political potato?
The Prime Minister and his morons in the Cabinet (not all are with him) have waited till now to publish the Table of Figures in an attempt to deliver the knock-out punch against Tun Mahathir Mohamad and other critics and at the same time hoodwinking the rakyat, but their efforts have backfired!
They have now created a bigger hole from which they cannot come out.
What is more devastating to this bunch of scoundrels is that they have by their actions exposed themselves to a criminal investigation by Bank Negara and if and when convicted of the crimes would be punished with a hefty fine of RM50 million or a term of imprisonment not exceeding ten years or both!
The fact that there is now an on-going criminal investigation into 1MDB is a shame on the integrity of the BN government, UMNO and the leadership of the Prime Minister.
As the Finance Minister, he was so stupid and arrogant to declare that he would by-pass Bank Negara when he ordered the redemption of the investment in Cayman Islands to be deposited in the BSI bank in Singapore.
The Prime Minister in defiance of Bank Negara admitted to contravening the provisions of the Financial Services Act 2013 and under the Exchange Control Act 1953 that was in force prior to 2013.
If, the pack of scoundrels were to subvert the investigations by Bank Negara, our country would be a laughing stock.
If the members of the UMNO Supreme Council and its entire membership lack the courage of their convictions to demand that their President and Prime Minister take immediate leave and hand over the reins of leadership to his Deputy in the party and government pending the completion of Bank Negara’s investigations, then UMNO is not fit to lead the country any more.
This grave omission would be perceived by not only Malaysians but other countries as well that UMNO and its entire leadership has condone the blatant financial rape of our country in contravening Malaysian laws!
Copied from Matthias Chang - 1MDB Financial Magic – More Grand Illusions - Is This The Beginning Of The End Of UMNO? - By Matthias Chang (4/6/15)