Putrajaya admits US$3 billion liability if 1MDB’s unit fails to pay up

Finance Minister Datuk Seri Najib Razak confirms the guarantee provided by Putrajaya to 1MDB's subsidiary in the event the company should default on its loan repayments. – The Malaysian Insider pic, March 16, 2015.Putrajaya has admitted that the letter of support it issued to 1MDB Global Investment Limited, a  subsidiary of debt-laden 1Malaysia Development Berhad (1MDB), will be effective if the company failed to repay a US$3 billion (RM11.1 billion) loan it took last year.

However, Finance Minister Datuk Seri Najib Razak said 1MDB Global Investment Limited needed to utilise its internal funds, including all its assets first before the Federal government stepped in.

"If all these steps have been taken and the company is still facing a shortfall in resolving its loan, then the government's support letter will be effective," he said in a written reply to Tony Pua (DAP-Petaling Jaya Utara) today.

The strategic investors wholly-owned subsidiary, 1MDB Global Investment Limited, had issued a bond to raise US$3 billion in March last year, for which Najib’s government had provided a “letter of support”.

According to the offering circular issued by Goldman Sachs, 1MDB Global Investment will "either on-lend all of the nett proceedings of this offering" to Abu Dhabi Malaysia Investment Company (ADMIC) or "use the nett proceeds of the offering to fund its investments in ADMIC".

However, in its latest financial statements for the year ended March 2014, 1MDB had said that the remaining nett proceeds had been utilised by the company for working capital and debt repayment purposes.

Of the US$3 billion bond, US$283 million was paid to global investment bank Goldman Sachs International for certain commissions, fees and expenses while US$1.56 billion is invested with a licensed financial institution.

Meanwhile, in another written reply to Datuk Dr Tan Kee Kwong (PKR-Wangsa Maju), Najib said businessman Low Taek Jho had never worked in 1MDB.

"All 1MDB business decisions and dealings are conducted by the management and 1MDB board of directors," he said in a three-line reply.

Criticism has been mounting over 1MDB, the wholly-owned Finance Ministry investment vehicle, established in 2009, which had chalked up debts of up to RM42 billion.

Scrutiny on it has grown more intense recently following whistleblower site Sarawak Report's exposés last week. This has piled further pressure on Najib and prompted opposition politicians, former Umno leaders and anti-graft bodies to demand a thorough investigation into the fund.

Najib ordered the country's auditor-general to "independently verify 1MDB's accounts", with the findings to be passed to the Public Accounts Committee, which in turn reports to Parliament.

Last week, Auditor-General Tan Sri Ambrin Buang told the media that the national auditor's inspection of 1MDB's account had started, but did not set a time frame to complete the audit.

The national auditor's finding on 1MDB is key as it precedes further action by PAC, as well as the police's own investigation. Inspector-General of Police Tan Sri Khalid Abu Bakar said the forces own probe into 1MDB would be contingent on the national auditor finding any "discrepancies or indications of wrongdoing".

Singapore's Business Times reported that Putrajaya had issued 1MDB a RM970 million loan, after a Cabinet meeting last month to discuss injecting funds into the debt-laden investor.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah revised the figure downwards to RM950 million, telling Parliament this morning that the fund was a standby credit for the firm, and expressed confidence that the company's cash-flow problems would be solved with an IPO (initial public offering) for its power plant assets, which had been postponed twice now.

- TMI