Malaysia: Crackdown on Freedom

Published on 14 May 2015 by Al Jazeera.

Meet the Malaysians arrested under a controversial law that critics say is being used to silence government opponents.

Boycott Chinese businesses, minister Ismail Sabri Yaakob tells Malays

A minister has called on the Malays to band together and boycott businesses that refuse to lower product prices despite the price of fuel having nosedived.

In a Facebook posting that has since been pulled down, Minister of Agriculture and Agro-based Industries Ismail Sabri Yaakob told Malays that since they formed the majority of consumers in the country, they should boycott Chinese establishments as a means of forcing the owners to lower prices.

He said that although the government through the Ministry of Domestic Trade, Cooperatives and Consumerism, could tackle errant businesspeople using the Price Control Act and the Anti-Profiteering Act, it was consumers who ultimately wielded the greatest power when it came to lowering market prices.

He lamented however that Malays continued to frequent these establishments although many of these food outlets either did not have “halal” certifications or if they did, had certificates that were “suspect”.

He fingered out Old Town White Coffee and wondered why Malays did not instead go to the thousands of other Malay restaurants that were genuinely “halal”. He said, “but still the Malays refuse to boycott…more so when the owner is said to be from DAP Perak’s Ngeh family who is widely known to be anti-Islam…”

He also said that it was time Malays changed their consumer behaviour patterns in order to stop the Chinese from exploiting them any further. “…as long as the Malays do not change… the Chinese will continue to take the opportunity to suppress the Malays”.

Read more here:

http://www.freemalaysiatoday.com/category/nation/2015/02/02/boycott-chinese-businesses-minister-tells-malays/

Ismail Sabri has adamantly refused to apologise for his call to Malays to boycott Chinese traders who refused to lower the prices of their goods because he believes his views were spot on and beneficial to people of all races.

He said many Chinese consumers were also disappointed with the high price of goods in the market despite the slump in oil prices and told the Malaysian Insider, “No way nak minta maaf (I will not apologise).”

Turning the tables on MCA who have demanded an apology from him, the minister of Agriculture and Agro-based Industry said instead, “My message is thank me for defending the Chinese, too.”

He also believed that despite all the threats from MCA last week, the party would not re-open the matter in the next cabinet meeting simply because the prime minister had already issued a formal statement and the matter was considered closed.

In the statement issued by the Prime Minister’s Office, Najib Razak said Ismail was not specifically singling out the Chinese per se, but referring to errant traders of all races who refused to lower the prices of their goods.

Read more here:

http://www.freemalaysiatoday.com/category/nation/2015/02/09/apologise-no-way-sabri-tells-mca/

Well Connected at Home, Young Malaysian Has an Appetite for New York

By LOUISE STORY and STEPHANIE SAUL.  Published by The New York Times on 8 Feb 2015.

In early 2010, a young Malaysian financier named Jho Low began making some very expensive real estate deals in the United States.

First, a shell company connected to Mr. Low, famous back home for partying with the likes of Paris Hilton, purchased a $23.98 million apartment in the Park Laurel condominiums in Manhattan. Three years later, that shell company sold the condo to another shell company, this one controlled by someone even more prominent in Malaysia: the film-producing stepson of the prime minister.

A similar transaction was playing out on the other side of the country. Mr. Low bought a contemporary mansion in Beverly Hills for $17.5 million, then turned around and sold it, once again to the prime minister’s stepson. (Read a summary of this article in Malay.)

Mr. Low also went shopping at the Time Warner Center condominiums overlooking Central Park. He toured a 76th-floor penthouse, once home to the celebrity couple Jay Z and Beyoncé, then in early 2011 used yet another shell company to buy it for $30.55 million, one of the highest prices ever in the building.

At the time, Mr. Low said he represented a group of investors, according to two people with direct knowledge of the transaction. Mr. Low recently told The New York Times that he had not purchased the penthouse for investors, and that it was owned by his family’s trust.

One thing is clear: As with nearly two-thirds of the apartments at the Time Warner Center, a dark-glass symbol of New York’s luxury condominium boom, the people behind Penthouse 76B cannot be found in any public real estate records. The trail ends with Jho Low.

Mr. Low, 33, is a skillful, and more than occasionally flamboyant, iteration of the sort of operative essential to the economy of the global superrich. Just as many of the wealthy use shell companies to keep the movement of money opaque, they also use people like Mr. Low. Whether shopping for new business opportunities or real estate, he has often done so on behalf of investors or, as he likes to say, friends. Whether the money belongs to others or is his own, the lines are frequently blurry, the identity of the buyer elusive.

Mr. Low’s lavish spending has raised eyebrows and questions from Kuala Lumpur to New York, where he has made a boldface name for himself as a “whale” at clubs like the Pink Elephant and 1Oak. The New York Post once called him “the mystery man of city club scene,” adding, “Speculation is brewing over where Low is getting his money from.”

One answer resides at least indirectly in his relationship, going back to his school days in London, with the family of Malaysia’s prime minister, Najib Razak. Mr. Low has played an important role in bringing Middle Eastern money into numerous deals involving the Malaysian government, and he helped set up, and has continued to advise, a Malaysian sovereign wealth fund that the prime minister oversees.

Now, that relationship has become part of an uproar gathering around Mr. Najib and threatening his already shaky hold on power. In Parliament, in political cartoons and in social media, Mr. Najib’s critics tend to argue that he is too close to Mr. Low.

Much of the concern, even in Mr. Najib’s own long-ruling party, involves questions about the Malaysian sovereign wealth fund. More broadly, though, the prime minister’s trappings of wealth and the widely broadcast tales of his wife’s outsize spending — the diamond jewelry, the collection of extravagantly costly Hermès Birkin bags — have become a focus of Malaysians’ rising unease with their government’s institutionalized culture of patronage and graft.

“We are very concerned,” Tengku Razaleigh Hamzah, a member of Malaysian royalty and an independent-minded elder statesman of Mr. Najib’s party, said in an interview in Kuala Lumpur last summer. “We want people of integrity to be up there.”

Increasingly, the glare turns to Mr. Najib’s stepson, Riza Aziz, and so to Mr. Aziz’s friendship with Mr. Low. With Mr. Low’s help, Mr. Aziz runs a Hollywood company that produced the films “The Wolf of Wall Street” and “Dumb and Dumber To.” He has spent tens of millions more on the homes in Manhattan and Beverly Hills, transactions that involved Mr. Low, The Times found.

“That’s a lot of money,” Sivarasa Rasiah, an opposition lawmaker, said of Mr. Aziz’s spending. He added, “Every U.S. report on him talks about family wealth. Family who?”

While Mr. Aziz has previously said he is personally wealthy, he declined to explain how he had acquired his money. Mr. Najib’s office, in a statement, said, “The prime minister does not track how much Mr. Aziz earns or how such earnings are reinvested.” As for the prime minister himself, the statement said he had “received inheritance.”

In a statement provided by a spokesman, Mr. Low, whose full name is Low Taek Jho, said he “is a friend of Mr. Riza Aziz and his family.” His real estate transactions with Mr. Aziz were made “on an arm’s-length basis,” he said, adding that he had never purchased real estate in the United States for the prime minister’s family or “engaged in any wrongful conduct regarding any financial matters for the prime minister and his family.”

At the Time Warner Center, The Times found, the 76th-floor penthouse, purchased through a shell company called 80 Columbus Circle (NYC) L.L.C., is one of at least a dozen that can be traced to people with close ties to current or former high-ranking foreign officials, or to the officials themselves.

According to one member of the condominium board there, while the board understood that the penthouse had been bought for investors, it did not ascertain their identities. At the Park Laurel, where Mr. Najib’s stepson owns, the board did not respond to questions about whether it had examined the financing of the purchase.

In fact, in-depth scrutiny of real estate deals is not required. International anticorruption organizations have criticized this lack of inquiry — not just by real estate brokers and condo boards, but by banks, lawyers and the federal government.

“People should ask the questions, ‘Why is it that this individual is bringing in millions of dollars into America, and how was it acquired?’” said Charmian Gooch, co-founder of Global Witness, a nongovernmental organization that works against corruption around the world.

THE MAKING OF A FINANCIER

To mention Mr. Low in Malaysia is to conjure the image of a baby-faced young man in rimless glasses and a loose black V-neck, holding a magnum of Cristal and surrounded by celebrities. But if he is sometimes derided as a tabloid party boy who once flew a group of bottle girls from New York to Malaysia, the reality is that the clubbing life, for Mr. Low, was actually a way to build a booming business managing money for his friends.

“I think a relationship with an investor is not just about managing their money well,” he said in an extensive interview with The Star, a Malaysian newspaper, in 2010. “Although it is not in my job scope, but if my friend says he wants a flight urgently to somewhere or he wants a dinner reservation at a well-known place, I’ll do my best to make it happen.” He also said, “I am usually the concierge service that arranges everything, and thus my name is all over the place.”

Around George Town, on Penang Island, where Jho grew up, the Lows were seen as a family of somewhat deflated affluence, according to several businessmen who have known them for years. The father, Larry, was an executive for an investment holding company called MWE Holdings, but he split with his partner in the mid-1990s and faded from the local business scene. Still only a teenager, Jho, the youngest of three children, emerged as the family’s best hope for the future.

There was money for education abroad, and in London, while attending the ancient and elite Harrow school, Mr. Low became friends with Mr. Najib’s stepson, Mr. Aziz, who was studying at the London School of Economics. He also grew close to Mr. Aziz’s mother, Rosmah Mansor, who stayed for months at a time in an apartment she kept there.

In college, at the Wharton School of the University of Pennsylvania, Mr. Low kept up his ties back home by running a Malaysian student group. But he also came to know the children of prominent Jordanian and Kuwaiti families. Even before graduating, he was managing money for what he later described as “my family and close Middle Eastern and Southeast Asian friends.”

After college, many of his early business deals were based in Malaysia — helping a Kuwaiti bank purchase a high-rise complex called the Oval, and bringing Middle Eastern money into the country to finance a commercial zone in the south and a new financial district in the capital. By 2007, he had formed an investment group that included a Malaysian prince, a Kuwaiti sheikh and a friend from the United Arab Emirates who went on to become ambassador to the United States and Mexico.

Two years later, he was pitching his idea for a Malaysian sovereign wealth fund. His plan was to invest public money for the public good through a fund tied to one of the country’s oil-producing states, and so he began wooing the sultan of Terengganu, who was also Malaysia’s king under the nation’s rotating monarchy.

It was all about making connections, making friends. Success, he told The Star, is “attributable to being at the right place and right time and meeting the right people coupled with a trusting relationship.”

In April 2009, those ingredients all came together for Mr. Low. The stepfather of his friend Mr. Aziz became prime minister of Malaysia.

Mr. Najib, 61, has a deep pedigree in Malaysian politics. His father, Tun Razak, was the country’s second prime minister, in the 1970s. His uncle was its third. His cousin is now defense minister.

Mr. Najib has risen through the political ranks: member of Parliament at 23; chief minister of his home state; minister of education, defense and finance; and deputy prime minister.

The family is tightly intertwined with Malaysia’s leading political party, the United Malays National Organization, whose long hold on power owes much to its close relationship with the country’s business elite. That closeness, in turn, has helped engender a culture of corruption, said Zaid Ibrahim, a former minister of legal affairs and judicial reform who served alongside Mr. Najib. Inflated government contracts are the norm, widely accepted because recipients simply turn around and donate to the party, he said.

“You know why corruption is very high in Malaysia?” he said. “It’s because the party in power is synonymous with the state.”...

Read more here: 

http://www.nytimes.com/2015/02/09/nyregion/jho-low-young-malaysian-has-an-appetite-for-new-york.html?smid=fb-share&_r=0

1MDB’s failure to settle debt seen driving down the Ringgit

By Ahmad Naqib Idris Adzman Shah. Published by The Edge Markets on 6 January 2015.

1Malaysia Development Bhd’s (1MDB) failure to settle a RM2 billion loan to local lenders has been a factor behind the extended drop in the ringgit against the dollar, an economist said.

The Edge Financial Daily, quoting sources, reported today that the sovereign fund had missed its Dec 31, 2014, deadline for settlement of the loan, and had received an extension up to Jan 30, 2015, to settle the outstanding payment.

The RM2 billion amount was part of a RM5.5 billion debt taken through its subsidiary Powertek Investment Holdings Sdn Bhd in May 2014 to refinance a RM6.17 billion bridging loan taken in 2012 to part finance the purchase of power assets. The remaining RM3.5 billion has been converted into a 10-year term loan due in August 2024.

An economist, who is attached to a local bank-backed research house but declined to be quoted, said that while factors such as the drop in oil prices and worries of a twin deficit had influenced the overall weakness of the ringgit, the currency’s decline past the RM3.50 level could have been due to 1MDB.

“1MDB’s failure to settle the RM2 billion loan has added to concerns about the overall financial stature of the sovereign fund, which has a knock-on effect on the ringgit, as we are not sure how much of its debt is backed by the government,” he told theedgemarkets.com. He added that the 1MDB’s situation had further stoked worries regarding the Malaysian government’s financials.

However, 1MDB aside, he said that the performance of the ringgit would largely depend on oil prices. “Principally, the main concern is on oil prices, which has resulted in some selling pressure for the ringgit, due to Malaysia’s position as a net oil exporter,” he said.

According to Bloomberg data, the ringgit has weakened to RM3.5553 against the US dollar, its lowest since 2009. Meanwhile, Brent crude oil hovered around US$53.50 per barrel.

Link: http://www.theedgemarkets.com/my/article/1mdb%E2%80%99s-failure-settle-debt-seen-driving-down-ringgit-economist

Sources said 1MDB has now been given until January 30 to settle the debt that was originally due on November 30, 2014. Malayan Banking Bhd (Maybank) and RHB Bank Bhd are the lead lenders. The problem has been brought to the attention of Bank Negara Malaysia (BNM), and sources said at a recent meeting, top executives from 1MDB led by chairman Tan Sri Lodin Wok Kamaruddin, director Tan Sri Ismee Ismail and outgoing CEO Mohd Hazem Abdul Rahman were given a dressing-down by the central bank. According to sources, the 1MDB executives were told in very strong terms that they will face action if the matter is not settled.

Maybank, RHB and BNM declined to comment. 1MDB did not respond to queries on the matter...Maybank has 58.99% of the RM2 billion loan while RHB has 32.41%. The other lenders are Alliance Investment Bank Bhd (4.06%), Malaysia Building Society Bhd (3.24%) and Hwang DBS Investment Bhd (1.29%).

Sources said the inability of 1MDB to meet its payments shows how it is struggling with cash flow that cannot support its debt servicing. They said it is likely that 1MDB has not received the US$1.23 billion (RM4.3 billion) that was supposed to be redeemed from the fund in Cayman Islands on November 30 last year. 

The money was the remaining amount of the US$2.33 billion invested in a fund there. In 1MDB’s audited accounts for the financial year 2014 ended March 31 (FY14) released in early November, it was stated that the money would be redeemed by November 30, 2014.

1MDB had borrowings of RM42 billion and suffered a negative cash flow of RM2.25 billion in FY14 with its debt servicing at around RM2.5 billion. Apart from not getting all the money back from Caymans, 1MDB’s plan to list its energy assets to raise money to pay its debts has been delayed and now looks likely to take place only in the second quarter of this year.

Read more here:

http://www.themalaysianinsider.com/malaysia/article/bank-negara-grills-top-executives-as-1mdb-fails-to-settle-rm2-billion-debt

KUALA LUMPUR (Jan 6): The FBM KLCI skidded 1.53% at the midday break on Tuesday, in line with the fall at most global markets. At 12.30pm, the index lost 26.32 points to 1,710.30. It had earlier fallen to its intra-morning low of 1,708.78.

Market breadth was negative as losers thumped gainers by 663 to 88, with 175 counters traded unchanged. Volume was 951.28 million shares valued at RM811.36 million. Meanwhile, the ringgit declined 0.61% versus the US dollar and was quoted at 3.5553.

Read more here:

http://www.theedgemarkets.com/my/article/klci-slides-153-global-growth-woes

Perwaja Steel Closure Is Inevitable

Published by Free Malaysia Today on 12 December 2014.

The Terengganu government has assured the 1,500 workers of Perwaja Steel Sdn Bhd that their welfare will be cared for although Perwaja will cease operation by year end. Trade and Industry Committee chairman Tengku Putera Tengku Awang said the state government has urged China-based Eastern Steel Sdn Bhd to employ Perwaja workers.

“The state government has negotiated with Eastern Steel who agreed to employ skilled Perwaja workers. However, Eastern Steel did not set a quota for the workers,” he told reporters after winding up debate in the state assembly today.

Established in 1982, Perwaja changed ownership several times and was beset by financial problems, forcing operations to be closed. Eastern Steel is Malaysia’s largest steel plant with investment of RM1.8 billion on a 500-hectare site in Teluk Kalong, Kemaman.

Tengku Putera said the state government via the Workers Coordination Committee was willing to meet with the Perwaja workers involved. “The retrenchment of Perwaja workers was decided one year ago but the first phase only began in early September. The closure is inevitable, although some capital injection and a rescue plan had been implemented,” he added. The state government is also willing to provide assistance to Perwaja workers who want to venture into business.

- BERNAMA

Link: 

http://www.freemalaysiatoday.com/category/nation/2014/12/12/eastern-steel-to-absorb-perwaja-steel-workers/

Public Accounts Committee probes Felcra

By Terence Fernandez.

Several past and present directors of the Federal Land Consolidation and Rehabilitation Authority (Felcra) including three deputy ministers are facing serious allegations of breach of trust and fiduciary duty for accepting honorariums without the approval of the Ministry of Finance (MoF).

It was reported last month that Felcra Bhd directors had paid themselves over RM700,000 in bonuses over a span of three years — in defiance of an MoF order not to do so. In 2008, when Felcra wrote to the MoF for approval to pay honarariums, the latter had declined the request.

Among those subject to an ongoing Public Accounts Committee (PAC) inquiry are MoF deputy secretary Datuk Dr Mohd Isa Hussain — who also sits on the audit committee. Mohd Isa, whose portfolio involves investments, Ministry of Finance Incorporated and privatisation is supposed to be MoF’s representative in Felcra to look out for the interests of the ministry.

However, the PAC heard that he had accepted the honorariums from 2010 to 2012 along with the other directors of the 11-member board.

The membership has changed over the course of the last three years, with three deputy ministers also named as receiving directors’ fees without MoF approval. They are former Felcra chairman Datuk Tajuddin Abdul Rahman, who is the present Deputy Agriculture and Agro-based Industries Minister; Deputy Human Resources Minister Datuk Seri Ismail Abdul Muttalib; and Deputy Urban Wellbeing, Housing and Local Government Minister Datuk Halimah Siddique.

Each director was paid RM20,000 in 2010, while Tajuddin who was chairman was paid RM30,000. This amount was raised to RM30,000 for each director and RM50,000 for the chairman for the next two years.Halimah, however, joined at the tail end of 2012 and as such only received RM5,000.

Felcra’s excuse was that the payment was “consolation” money was for “excellent work”, and paid out RM133,333 in 2010; RM257,500 in 2011; and RM332,500 in 2012.

Other than Mohd Isa, also facing the PAC during last month’s hearing were newly-appointed Felcra chairman Datuk Bung Mokhtar Radin and Felcra chief executive officer Datuk Ramlee Abu Bakar.

PAC chairman Datuk Nur Jazlan Mohamed had made it clear that Bung Mokhtar was not among those who had received the bonuses and is assisting the PAC in the investigations.

Nur Jazlan had also revealed, in a case of putting the cart before the horse, that the Felcra board only sought MoF approval for the bonuses in October — after the money was paid.

PAC sources tell The Edge Financial Daily that the Malaysia Anti-Corruption Commission (MACC) chief commissioner Tan Sri Abu Kassim Mohamad had viewed the PAC findings and was of the opinion that there is no element of corruption but a clear case of breach of trust.

“It is in clear breach of the Companies Act where shareholder approval was not obtained to pay out the honorariums,” said a source.

This article first appeared in The Edge Financial Daily, on December 8, 2014.

Link:
http://www.theedgemarkets.com/my/article/pac-probes-felcra

Malaysia’s Investment Fund Disaster

Written by John Berthelsen. Published by The Asia Sentinel on 8 December 2014.

In 2008, a boisterous young man by the name of Jho Low Taek, a Penang-born Wharton grad with a taste for Cristal champagne and Broadway blondes, approached Malaysia’s Terengganu state government with a proposal to use the state’s authority to sell RM10 billion (US$2.87 billion)  in bonds to start a state-backed investment fund. 

That proposal has led to what Tony Pua, a Democratic Action Party lawmaker, has called “the mother of the mother of the mother of all scandals in the history of Malaysia.” 

That might be one mother too many, but Pua is not alone, with critics of what is now called 1Malaysia Development Berhad, or 1MDB, coming from outside the opposition as well. It is certain that the proposed Terengganu Investment Authority has metastasized into a mess that can properly be called huge and has put Prime Minister Najib Tun Razak’s tattered reputation on the line yet again.  Much of the story has been detailed in two Malaysian publications, The Edge and the online news portal Malaysiakini's business unit, Kinibiz.

Najib, the head of the 1MDB advisory board, has faced a barrage of questions from opposition lawmakers in Parliament for weeks and an attack on his own flank from former Prime Minister Mahathir Mohamad and his allies, including former Finance Minister Daim Zainuddin, over what can only be regarded as an astonishing level of mismanagement.

The question was why Malaysia needed another government-backed investment fund in the first place, especially one dreamed up by a young friend of the PM's family. It has Khazanah Nasional Bhd., the 23-year-old investment holding arm that manages Malaysia’s assets and makes strategic investments, and the Employee Provident Fund, which also invests employee pension funds. Both are creatures of the Ministry of Finance.

The Terengganu Sultan, Mizan Zainal Abidin, had misgivings over the plan by Jho Low, as he calls himself, so the 27-year-old Low went to the parents of a friend he had made among Malaysia’s privileged elite in the UK. While anti-colonial rhetoric still spews at home, Malaysia’s wealthy have always known where to send their scions. Jho Low was at the exclusive 450-year-old Harrow, with his friend Riza Aziz at nearby 150-year-old Haileybury, which trained English youth for service in India. Riza’s mother is Rosmah Mansor, Najib’s second wife.  

Thus the proposed Terengganu Investment Authority metamorphosed into 1Malaysia Development Bhd., also under the Ministry of Finance. Today 1MDB has accumulated debt of RM36.25 billion (US$10.4 billion) that is only covered by repeated accounting upgrading of the value of property handed to it at a knock-down price by the government to get it started – a 196-hectare former air force base near the center of Kuala Lumpur. 

In recent months, the government, in an attempt to build up the fund so it can be listed, has strong-armed at least three no-bid contracts for 1MDB to build coal-fired and solar power plants. One of those power plants, in Port Dickson near Malacca, was awarded to 1MDB despite a lower bid from a joint venture of YTL International Bhd and SIPP, partly owned by the Sultan of Johor, who is said to have been enraged by the loss and is demanding privately that SIPP be given its own no-bid contract for another plant.

Although its dealings are opaque, sources in Kuala Lumpur believe it was Jho Low, previously regarded as a savvy investor despite his tender years, who drove 1MDB into disaster.  Although the chairman of the Board of Directors is Lodin Wok Kamaruddin, who holds the high-ranking honorific of tan sri, he is regarded as a figurehead and many of 1MDB’s major decisions have Low’s fingerprints on them.

Low, who has accompanied Rosmah on forays to New York to meet celebrities including Lionel Ritchie and Paris Hilton, landing in the pages of the New York Post, involved 1MDB in backing his failed 2011 bid to buy three prestigious London hotels – Claridge’s, the Connaught and The Berkeley, according to documents filed in the Chancery Division of the UK’s Royal Courts of Justice. 

A Los Angeles law firm accused the government of Malaysia, without mentioning 1MDB, of racketeering in funding the phenomenally successful movie The Wolf of Wall Street, an Oscar-nominated picture starring Leonardo DeCaprio and co-produced by Riza Aziz, Rosmah’s son. How that might have been done is unclear. The lawyers for a Los Angeles plaintiff who sued over the rights to the movie refused to elaborate, citing lawyer-client privilege.  But in the case of the Claridge’s campaign, 1MDB issued guarantee letters saying the fund would stand behind the purchase. Presumably that meant Malaysia’s sovereign fund would cover any losses accrued if the sale failed.  

The fund loaned RM7.2 billion to finance oil exploration for another chum out of that rarefied London ex-colonial society – Tarek Essam Ahmad Obaid, a London playboy said to be a grandson of the Saudi Sheikh Obaid, one of the kingdom’s most senior grandees. Tarek met Jho Low a few months before the deal for the loan was consummated, according to Clare Rewcastle Brown, a former BBC reporter who has followed the 1MDB affair closely. Tarek is the founder and chief executive of PetroSaudi International, Ltd.  Despite its pretentious website there is little information on PetroSaudi, which was only incorporated three years before the entry of 1MDB. The money, to be loaned at 8.75 percent, has disappeared. 

What 1MDB has not done is make enough money to cover its huge debt, although determining anything is difficult because no up-to-date accounts have been filed. 

“I was the finance head for oil companies  before I entered politics,” Rafizi Ramli, strategic director and secretary-general of the opposition Parti Keadilan Rakyat, told Asia Sentinel. “Nobody I knew had ever come across PetroSaudi before. We tried to check what it was. It was incorporated in the British Virgin Islands. While it is normal for financial investors to enter into ventures, how could a government commit such a huge sum of money with a greenhorn company with no known track record, incorporated in a haven for dodgy money, in an industry where capital risk is so huge?”  

When the bid to explore for oil collapsed, the money appears to have been invested in speculative yen forex deals, insiders told Rafizi. Forex trading is not for amateurs.  By early 2012, it began to appear that the money had altogether disappeared, according to Tony Pua. 1MDB was having trouble filing its financial reports, a signal that something was wrong.  When 1MDB said the funds had been moved into a fund in the Cayman Islands, its managers refused to say who was managing the money.

Today, Pua said, the entire operation appears to be built on debt, although with audited financial reports delayed it is impossible to say for sure. Its managers are seeking to cover the losses through additional borrowings and money raisings, including a US$4.75 billion one engineered by Goldman Sachs, the international investment bank, that cost 1MDB 10 percent of the offering, a phenomenal amount for “commissions, fees and expenses” according to the prospectus. By comparison, Tenaga Nasional, the state-owned energy utility, paid a 2 percent fee on a US$300 million money raising. SMBC Aviation Capital, which leases jets to Malaysian Airlines, paid 0.5 percent on a US$1 billion capital raising. The fees paid to Goldman worked out at US$1.54 billion, Pua said.

The fund today is betting its future on becoming the country’s biggest power producer and a global energy player. It acquired a string of overpriced independent power producers from the Genting gambling interests and Ananda Khrishnan, the country’s richest businessman and an UMNO crony, for RM11 billion to generate cash flow, at what were astounding valuations. Indeed, within six months, the fund’s auditors wrote off RM1.2 billion of the valuation because they were so overpriced. 

“Because they were desperate to borrow to cover the acquisitions, they had to pay higher interest rates,” Pua said. “And because they were desperate, they paid Goldman crazy fees to arrange the loans.”

On top of the enormous interest burden from the debt, it turns out that the cash flow from the IPPs is so small that it was barely enough to cover the interest, let alone pay back the RM15 billion principal. 

With the hole from the initial failed loan to PetroSaudi, and the vast debt from the IPP purchases, 1MDB is now trying to list to raise US$10 billion from the market. But in order to write a credible prospectus for the listing, it requires strong financials. 1MDB’s financials do not come anywhere near credible enough to assure potential investors of future cash flow. 

The government has stepped in to extend the contracts for the IPPs, which were supposed to end after their contract periods ended. That is still not enough. The government then tendered a contract to build the coal-fired plant in Port Dickson. Critics charge the contract was unnecessary, that Tenaga Nasional, the state-owned utility, had the experience and capital to build the plant itself. The tender turned out to be a fiasco, with the YTL-SIPP consortium coming in with a lower bid, only to be disqualified on what many critics have said was a technicality.

Since then, the government has awarded three contracts to 1MDB, the other two without the potential embarrassment of a tender process. But critics point out that 1MDB has never built anything and is mainly relying on the expertise of Tenaga Nasional. The bid for a 50 megawatt solar power plant project in Kedah in the north of the country is to be the largest solar plant in Malaysia despite the fact there is no guaranteed offtake, that prices for solar, even though they have fallen sharply, still exceed that of conventional plants, and that Malaysians are going to end up paying more for their electricity.  

All of these moves are an attempt to rescue 1MDB and give it the potential to demonstrate income to investors. So on the advice of a 27-year-old neophyte and friend of the prime minister’s family, the country has created a state-backed investment fund, got itself involved in a series of businesses it knew nothing about, put the country’s sovereign backing behind a private hotel bid and a Hollywood movie, run up a vast amount of debt, and now is seeking to bail itself out via preferential contracts to build electrical plants with expertise so far it doesn’t have.  The critics expect that this is going to cost Malaysia’s taxpayers and ratepayers a considerable amount of money.

Link:

http://www.asiasentinel.com/politics/malaysia-investment-fund-disaster/