Troubled state fund 1Malaysia Development Berhad (1MDB) might not just have been cheated of US$3.5 billion (S$4.8 billion) by transferring it to a phoney offshore company, but the missing cash is threatening a plan by the state investor to retire a third of its RM51 billion (S$18 billion) debt pile, observers say.
1MDB has claimed that in making the deposits, it dealt with the former managing director of Abu Dhabi's International Petroleum Investment Company (IPIC), who was also the chairman of subsidiary Aabar Investments PJS, and the latter's chief executive.
But it has emerged that the series of payments was instead made to similarly named Aabar Investments PJS Limited, which was registered in the British Virgin Islands (BVI). IPIC said in a London Stock Exchange filing Monday that it does not own this company, which is referred to as Aabar BVI. IPIC said it has not received any payments from Aabar BVI.
The BVI company was wound up in June last year, IPIC said. The situation jeopardises 1MDB's debt-asset swap with IPIC which must be completed by end-June. The deal was to help 1MDB retire some US$4.5 billion in debt.
In May last year, 1MDB signed a deal with IPIC to surrender some of the US$3.5 billion deposit and investment units, worth US$940 million, in exchange for US$1 billion cash and the transferring of all liabilities from US$3.5 billion in bonds.
"If the money is missing, then what was a done deal is now headed towards a dispute," Mr Lim Chee Wee, of law firm Skrine, told The Straits Times.
The complicated 1MDB deals are closely watched by government critics, but are lost on others still trying to figure out who took what and who's to blame. Prime Minister Najib Razak, who also heads 1MDB's advisory board, has said he did not take any funds and that huge sums found in his personal bank accounts were Saudi donations. His critics say he was 1MDB's main driver.
1MDB, in defending why it transferred US$3.5 billion to Aabar BVI, based in the offshore tax haven, has claimed that this was on the instruction of IPIC's former managing director Khadem Al-Qubaisi and Aabar Investments' then chief executive, Mr Mohamed Badawy Al-Husseiny. 1MDB president Arul Kanda Kandasamy said on national television on Wednesday that IPIC and Aabar "cannot run from their responsibilities" as the sums were paid through the Aabar duo.
The US$3.5 billion was paid out by 1MDB as security deposits and fees to cancel share options as part of a deal involving IPIC's guarantee of bonds issued by 1MDB.
Having first insisted that its audited records show "documentary evidence of the ownership of Aabar BVI", 1MDB now accepts that it could have been scammed after "the recent denial by IPIC and the announcement by the Office of the Attorney-General of Switzerland" that two former Emirati public officials are being probed for fraud.
Mr Khadem left IPIC in April last year, while Mr Badawy exited in August. Although not named by Swiss authorities, they are the duo under investigation, according to media reports citing unnamed sources.
According to the Public Accounts Committee report and transcripts of its 1MDB inquiry released last week, 1MDB claims that "the counterparty has sign(ed) off that they have received their funds" including an "acknowledgement from a former CEO of Aabar that funds were received" in an initial US$1.4 billion tranche.
But "the National Audit Department found that Aabar Ltd (or BVI) was not listed in the IPIC group based on its 2013 and 2014 financial statements", the report said.
Litigation lawyer Andrew Yong of AmerBon said that if 1MDB has the documents to back its claim, then IPIC would have to honour deals struck by officials who had the authority to do so. But given the narrow time frame for the swap to be executed, "it will likely go into a dispute that will take years to resolve".