1MDB Board unhappy over hasty deal and diversion of funds to joint venture: Report

A motorist riding past the construction site of the 1MDB Tun Razak Exchange in Kuala Lumpur.
A motorist riding past the construction site of the 1MDB Tun Razak Exchange in Kuala Lumpur.PHOTO: AFP

PETALING JAYA (THE STAR/ASIA NEWS NETWORK) - The board of 1Malaysia Development Bhd (1MDB) was unaware of the diversion of US$700 million (S$945 million) in funds meant for a joint venture company it set up together with PetroSaudi International Ltd (PSI).

The members were also unhappy with the manner and speed in which the agreements were signed to set up the joint venture company called 1MDB PetroSaudi Ltd on Sept 28, 2009.

According to investigators, the board members felt the agreement to set up the JV company was signed hastily and this prompted two senior members of the 1MDB board to resign.

The board of 1MDB was informed on Sept 18, 2009 of an agreement with PSI and that valuations were to be carried out on its oil and gas assets in Turkmenistan and Argentina.

However, on Sept 28, the agreement was signed with PetroSaudi Holdings (Cayman) Ltd, a wholly owned subsidiary of PSI.

According to investigators' initial findings, there was no document related to the existence of assets and valuation of PetroSaudi Holdings (Cayman).

Under the agreement, 1MDB paid PetroSaudi Holdings (Cayman) US$1 billion for a 40 per cent stake in the joint venture.

Investigators said the board was not informed about a loan amounting to US$700 million that was extended to the JV company by PetroSaudi Holdings (Cayman) on Sept 25, three days before the JV was formalised.

The loan was extended with the condition that it was to be repaid in full by Sept 30.

According to investigators, the board had approved the US$1 billion deal and that the cash be transferred into the account of the joint venture - 1MDB PetroSaudi.

"However on Sept 30, only US$300 million of the total US$1 billion was actually transferred to the joint venture account while US$700 million was deposited into another account," said investigators.

The board members were unhappy that the agreement was signed without much consideration and that US$700 million meant for the JV company was transferred to another company without their approval.

"The board subsequently directed that the US$700 million be returned to the JV company, but no action was taken," said an investigator.

This led to the resignations of 1MDB chairman Datuk Mohd Bakke Salleh and Tan Sri Azlan Mohd Zainol who were said to be unhappy with the defiance of the 1MDB management.

Bakke resigned on Oct 19, 2009 while Azlan left the board on Jan 11.

On March 31, 2010, the 40 per cent stake was converted into Islamic debt papers valued at US$1.2 billion.

In 2010, 1MDB had extended additional borrowings to 1MDB PetroSaudi amounting to US$500 million and another US$300 million.

In 2012, the Islamic debt papers were redeemed and 1MDB ended up with a 49 per cent stake in PetroSaudi Oil Services Ltd (PSOSL). The value of the 49 per cent stake was US$2.2 billion.

1MDB eventually sold the 49 per cent stake to Bridge Partners International Investment Ltd in August the same year, and received promissory notes amounting to US$2.32 billion from Bridge Partners.

In the same month, 1MDB through its subsidiary Brazen Sky Ltd invested the promissory notes into Bridge Global Absolute Return Fund SPC and Bridge Partners Investment Management Company (Cayman) Ltd.

1MDB redeemed part of the money amounting to US$1.22 billion.

The remaining is still held in various portfolios.