1MDB responds to allegations made by Mahathir over its investments

Men walk past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur in this March 1, 2015 file photo. -- PHOTO: REUTERS 
Men walk past a 1 Malaysia Development Berhad (1MDB) billboard at the funds flagship Tun Razak Exchange development in Kuala Lumpur in this March 1, 2015 file photo. -- PHOTO: REUTERS 

KUALA LUMPUR - 1Malaysia Development Bhd (1MDB) on Tuesday countered several allegations made by former Prime Minister Tun Dr Mahathir Mohamad about the troubled state investment fund, Malaysian media reported.

Debunking the claims in statements it issued Tuesday, 1MDB touched on various issues raised by Dr Mahathir, including allegations that the fund had hijacked Terengganu Investment Authority's (TIA) money, the joint-venture with PetroSaudi and the RM2 billion said to be borrowed from billionaire Ananda Krishnan.

On the TIA issue, the fund said a Cabinet paper had been presented and approved for the issuance of a government guarantee of RM5 billion sukuk by the Terengganu Investment Authority (TIA). The firm was later renamed 1MDB, after the federal government took over, the Malaysian Insider reported.

Rebutting Dr Mahathir's claim in a recent blog post that there was "no evidence" of such a Cabinet paper, it said the federal government had full knowledge of the matter, the Malay Mail reported.

"Contrary to Tun Mahathir's claim, a Cabinet paper on this matter was prepared and approved by Cabinet, in line with standard practice and as required for all government guarantees," it said.

In replying to allegations from Dr Mahathir on its investments in a joint venture with PetroSaudi International (PSI), it stated that it had made a gain of US$488mil from the venture, The Star reported.

1MDB, which is an entity owned by the Ministry of Finance, said that total investments with PSI between September 2009 and June 2012 amounted to US$1.83bil and it started off as an equity investment and later converted into an Islamic loan that came up to US$2.22bil.

"In June 2012, the entire USD1.83 billion amount invested by 1MDB in murabaha notes (in the JV with PSI) was repaid, by way of conversion into shares of Petrosaudi Oil Services Limited, for a value of USD2.22 bil," it said.

In September 2012, 1MDB sold its shares in PetroSaudi Oil Services Limited for US$2.318 billion and received fund units in a Cayman registered fund.

The Cayman registered fund is managed by Bridge Partners, a Hong Kong-based fund manager. These fund units were owned by 1MDB via its 100 per cent subsidiary, Brazen Sky, and held through BSI Bank Singapore as custodian.

On Dr Mahathir's statement on Monday that 1MDB has not shown any documentary proof of the existence of the money from Cayman Island in BSI, the fund said that "documentary proof" for all the assets of 1MDB, including the fund units and other financial assets of 1MDB, has been presented to the auditors of 1MDB.

1MDB also said Bank Negara Malaysia was presently conducting an investigation on it and it was only appropriate to await the outcome of this investigations.

1MDB also fought back allegations that the debt papers it issued were at a high cost as it shed some light on why Mr Ananda, Malaysia's second richest man, gave a loan of RM2bil to the fund in January this year to settle its loan obligations with local banks.

1MDB said on Tuesday that Tanjong (a company owned by Mr Ananda) was obliged to subscribe for shares worth RM2bil in subsidiary of the fund (Powertek Investment Holdings) in accordance with an agreement signed on August 2014.

But 1MDB said that due to confidentiality agreements it cannot elaborate why the RM2bil investment for shares became a loan.

"Regretfully, as previously explained, 1MDB is bound by confidentiality agreements and cannot elaborate further on why the RM2.0bil equity investment was subsequently agreed by the parties to become an RM2.0bil loan but we trust that the facts shared above provides some clarity on this matter," it said.

1MDB, which faces cash-flow problems, needed a loan of RM2bil to settle its outstanding obligations to several local banks including Maybank and RHB Bank because they had fallen due and a non-payment would risk the fund going into a default of all its other loans amounting to some RM42 bil.

Dr Mahathir Mohamad had criticised the fund for relying on Mr Ananda to repay its loans.

Dr Mahathir had also has hit out at 1MDB for issuing its debts papers in 2009 at yields of almost 7 per cent when government guaranteed papers would cost some 3 per cent.

On the pricing for its RM5bil Islamic debt papers issued in 2009, 1MDB said that the 30-year debt papers with a coupon rate of 5.75 per cent were issued at approximately 88, a discount to face value of 100.

"The discount when added to the coupon rate of 5.75% results in a yield of approximately 6.15% and not 7%," it said.

It also said that government bonds with a tenure of 10-years carry a coupon rate of 4.27 per cent and based on this logic the outcome for the 30-year paper was 6.15 per cent.

"Given the difference in the maturity period, this was a good outcome by any yardstick in the fixed income markets," it said.