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A subsidiary of the Kedah Menteri Besar Corporation (PMKed) took up a loan of US$44 million (RM134 million), without its board of directors’ approval, for a timber and plantation project which later went bust.
According to the Auditor-General’s Report 2011, the loan was obtained by Kedah Corporation Bhd’s (KCB) managing director and general manager for a project in Papua New Guinea.
“The loan was obtained through Capital Investment Agency, a consultancy company based in London,” the report notes.
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“This is although the loan was cancelled in January 2010, as the loan provider found that (KCB) was incapable of paying back the loan,” it reads.
The audit found that the agreement for the “high-risk investment” between KCB and Papua New Guinea company MAS Incorporated was signed on Oct 12, 2008.
KCB had then purchased a 70 percent stake in MAS Incorporated for RM31.21 mil, as investment in the Baina and Bonua Magarida projects involving 114,429 hectares of land.
On top of that, KCB paid RM4.21 million to MAS Incorporated for “goodwill and mobilisation” in 2008.
However, the project was halted due to “high costs, landform, (MAS Incorporated’s) relationship with land owners, and customary land rights.
More loans, no supporting documents for claims
The agreement between KCB and MAS Incorporated was not presented for study by the state legal adviser, while the project proposal was presented to the board 13 months after the agreement was signed.
Besides the loan from Capital Investment Agency, KCB also took out loans worth a total of RM2.46 million for the project, also the without the board’s approval.
The audit also found no supporting records for RM579,838 paid to MAS Incorporated and another Papua New Guinea timber company.
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Besides the Papua New Guinea project, KCB was also found to have signed an agreement in October 2008 for a cattle ranching project in Australia.
Based on the joint-venture agreement, KCB was to pay RM1 million goodwill payment, US$5 million (RM15.2 million) for research into investment opportunity and US$20 million (RM60.8 million) for asset purchases.
The audit found that KCB has incurred losses for three years running from RM1.81 million in 2008 to RM2.85 million in 2010.
The company also owes RM10.33 million to its parent company PMBKed as at the end of 2011.
Admission of no board approval for loans
In response to the Autralian ranching project, KCB said that the investment was “halted early” as it was “beyond KCB’s financial capability”.
“KCB had informed this to the partner and there are no legal repercussions, in accordance with the agreement,” it said.
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It said missing payment records may have been lost in 2010, when the company moved from Wisma Bina DarulAman Bhd and Wisma DarulAman.
The company also explained that the goodwill payment to MAS Incorporated was for “land exploration and lobbying works” while the mobilisation payment was for “land survey, office rental, salaries, timber research, etc.”
“KCB has issued a notice of claim to MAS Incorporated to demand it return RM1.36 million provided for the project,” the company said.
KCB had obtained other loans amounting to RM2.46 million from four separate companies for the Papua New Guinea project, without the board’s approval.
It added that the RM1.6 million was paid to Capital Investment Agency “to close the case after verbal agreement”.
On the other loans undertaken, it said that successful negotiations took place with three loan providers, while a court case is pending with another company.
It said KCB “does not have to pay anything to (the three loan providers) as the loans were investments for the logging and other projects in Papua New Guinea”.
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