Thoughts on 1MDB

As at 26 May 20115
1MDB is an enigma. At least for the moment. It is currently a jigsaw puzzle with plenty of the pieces missing.
There is plenty that can be learned from 1MDB, but in order to do our learning, the picture must be complete. The good thing is that the saga is unfolding, slowly but surely. And in this post, I would try to put the pieces together in order to show the picture that played in my head. It is going to be a work in progress and as and when we have new information, I would put my thoughts here for all to discuss, objectively. If you have any information or find any here as positively incorrect, then I would be more than happy to be corrected.

WHAT WE SEEM TO KNOW

The borrowings:

1. RM42 billion is the total debt of 1MDB (often said out and no one disputed this)
2. USD3.3 billion (RM11.55 @RM3.5) 6.6% indebtedness program by an SPV of 1MDB is part of the RM42 billion total debt above. The debt paper is technically guaranteed by the Government via a letter of Support.
3. RM4 billion was 'borrowed' from KWAP via SRC, a subsidiary of 1MDB.
4. The government is said to only 'guarantee' RM5 billion in debt.

Known lenders

1. Tabung Haji has an RM920 million bond in 1MDB's real estate development Bandar Malaysia and last month bought 0.63ha from the TRX financial district, which is another 1MDB development. - See more at: http://www.themalaysianinsider.com/malaysia/article/tabung-haji-yet-to-sell-trx-land-says-azeez#sthash.LJJyXkWl.dpuf
2. Deputy Finance Minister Datuk Ahmad Maslan (pic, right) said EPF had purchased RM200 million in bonds from 1MDB in 2009, which was completely guaranteed by the government, and invested RM1.52 billion in two other power assets that were eventually taken over by 1MDB - See more at: http://www.themalaysianinsider.com/malaysia/article/now-finance-ministry-says-epfs-investment-in-1mdb-slightly-risky#sthash.tVj8W8Ar.dpuf

The utilization of proceeds:

1. Nothing much, except some power plants and a couple of government owned lands with totaled around RM15 billion at historical acquisition cost.
2. That RM27 balance of the RM42 billion debt is unknown to us and it is causing a lot of suspicion.
3. Some USD2.32 billion was deposited / invested in Caymans Island. The balance RM1.103 created controversy. "BNM Governor Tan Sri Dr Zeti Akhtar Aziz said the Monetary Authority of Singapore (MAS) had furnished its report on its investigations into the account, which recently caused controversy here when it was revealed that the US$1.103 billion kept in it was in “units” and not cash as previously claimed."- Malay Mail Online. The suspicion heightened when the current and former CEO failed to attend the PAC proceedings (due to some reasons).
   
   The US$1.103 billion is the second tranche of funds in 1MDB’s Cayman Islands foray, which totaled US$2.32 billion. - See more at: http://www.themalaymailonline.com/malaysia/article/bank-negara-confirms-told-about-1mdb-bsi-cash-issue-by-singapore#sthash.cjLmJyaK.dpuf
4. The responses with regards to the utilisation has been very slow, causing suspicions.

WHAT WE NEED TO KNOW, AND WHY:
The borrowings:

1. The detailed breakdown of the RM42 billion total debt at historical cost. We need to have this information for accurate money trail and asset-liability matching. We would then be able to answer if the decisions on borrowings was made on sound borrowing/funding practice or not.
2. The historical costs of assets purchased / matched with the funding. We need this information to ensure that the utilization of borrowings proceeds are all in order. It is not accurate to equate the RM42 billion with the current value of the project as the RM42 billion is a historical cost while the current value of the projects are revalued figures. We need to match the historical costs.
3. Is the government really going to just guarantee RM5 billion debt? Or is the government going to ensure that there will be no default of the RM42 billion,  in other words effectively guarantee all the RM42 billion? We need to know this so that we can effectively gauge the level of exposure by the government.

The utilization of proceeds.

1. Details on the utilization of all cash inflow from the borrowings, again at historical cost. It is incorrect to give the revalued figure as a substitute for the utilization as it is not a cash flow. We need this information to ascertain the balance RM27 billion which are not known above.
2. Details on the existence of the assets purchased with the proceeds. We need to now this to ascertain if there was any element of fraud.
3. Was the USD1.103 billion (balance of) investment in the Cayman Island's units / assets an approved and permitted investment for the proceeds? Was it approved by the Board? When it was redeemed, was the Board notified of the details of the redemption. We need to know all this as we need to know if there was any breach of trust in making the investment in the first place and was there any intention to mislead the parliament (and kept the parliament misled until the correction). "Prime Minister Datuk Seri Najib Razak has also been accused by Tun Dr Mahathir Mohamad of "lying" about the redeemed investment, which he said was in cash form totalling US$1.103 billion (RM4.08 billion) in March. - See more at: http://www.themalaysianinsider.com/malaysia/article/bsi-bank-in-singapore-lodged-complaint-against-1mdb-says-bank-negara#sthash.qihaQDHI.dpuf"
4. What happened to the balance RM1.2 billion of the money in Caymans?
   
   (The US$1.103 billion is the second tranche of funds in 1MDB’s Cayman Islands foray, which totalled US$2.32 billion. - See more at: http://www.themalaymailonline.com/malaysia/article/bank-negara-confirms-told-about-1mdb-bsi-cash-issue-by-singapore#sthash.cjLmJyaK.dpuf)
5. Whether is it true that RM3.8 billion (USD1 billion) was invested in an open fund, as alleged by Rafizi. If it is true, then we will move it up to the known section.
6. Is it true? 
• Sarawak Report on UBG deal: "The company had received a working capital of USD$300 million from the deal with 1MDB and the documentation shows that at least two further tranches of USD$500 million were drawn from 1MDB later in July 2010 and September 2010 under the Murabaha Loan Agreement, which had been set up after the original Joint Venture was dissolved in March 2010 (a day before it would have been necessary to disclose the terms of the JV agreement including the $700 million “loan repayment” in the accounts). So, the money to buy out UBG looks to have come from elsewhere and the evidence, in fact, shows very clearly how that the $700 million “loan repayment” was channeled into the company PetroSaudi International in the Seychelles, which eventually acted as the buyer for UBG."http://www.sarawakreport.org/2015/02/from-1mdb-to-the-ubg-bank-buy-out-how-the-usd700-million-was-managed
• Sarawak Report detailed in an expose earlier this year how USD$700 million was siphoned out of a Joint Venture, in which 1MDB invested an initial USD$1 billion into a company named 1MDB PetroSaudi International in 2009.

To be updated.