WHAT NOW PUA? 1MDB HAS FIRED BACK!

Pua should do more homework and research to maintain accuracy or his integrity and credibility would be severely dented. 

Ng Kee Seng, The Ant Daily

1Malaysia Development Berhad (1MDB) today (Oct 30) said its security cash flow and returns to bondholders are assured.

Responding to what 1MDB classifies as “considerable speculation about various elements of 1MDB’s business”, “concerns have been raised about the 5.75 per cent interest rate assigned to a RM5 billion Islamic bond that was issued by 1MDB in 2009, with suggestions that this was a bond with a particularly high interest rate”.

“As a comparison, it has been noted that another government-linked company, Petronas, paid an interest rate of 3.6 per cent on a bond at the same time. This is an unfair comparison that does not take into account a number of important factors.

“When subscribing to a bond, lenders take on a certain degree of risk.  The longer the tenure, the higher the risk for the bondholder.  As such, bonds that have a longer maturity period typically have a higher interest rate.

“As far as we are aware, the only Petronas-related bond issued in 2009 that carried a coupon rate of 3.6 per cent was for a RM100 million bond with the tenure of only three years.

“Given the significant difference between the maturity periods, it should not be surprising that the bond issued by 1MDB had a higher interest rate,” 1MDB said in its response statement.

Read theantdaily’s Oct 28 article titled “Where did 1MDB’s RM1.6 billion go?” for context.

More broadly, 1MDB said, “it is important to note that the bond issued by 1MDB in 2009 was the first Malaysian bond with a 30-year tenure, and the first Islamic bond to be issued with a maturity period of that length.

“Given the economic climate of the time, the fact that 1MDB successfully managed to raise this amount of capital reflects the support, goodwill and confidence placed in the company,” the statement said.

“We have also noted with concern unsubstantiated speculation that a portion of this interest rate has been paid to ‘middle-men’ as a benefit payment of sorts. This is a serious allegation.

“We wish to make clear in unequivocal terms that the entirety of the 5.75 per cent annual interest rate is paid to our bondholders, which include some of Malaysia’s leading institutions, twice a year in accordance with the payment schedule. To suggest otherwise or insinuate that a portion of this amount is being paid to middlemen is factually incorrect.

“Further to this, concerns have also been raised about the commission and fees incurred by 1MDB for two additional debt issuances in 2012 and 2013, for US$1.75 billion (RM5.7 billion) and US$3 billion (RM9.8 billion) respectively.

“Both these bonds were issued at a discount typical of most bond offerings.  Any difference between par value (issued value) and the net proceeds of a bond comprises not only fees and other expenses but also its effective yield, which takes into account the discount and the remaining tenure of the bond.

“We would like to make clear that the bulk of the difference between the bonds’ par value and the net proceeds are attributed to the bonds being issued at a discount. This decision is to ensure the successful completion of the fundraising in view of internal and external factors of the market, the speed to complete the offering and the scale of the underwriting.

“Both debt issuances were fully underwritten by Goldman Sachs which is a leading global investment bank.  It is one of a handful of banks with the ability to underwrite debt issuances of this size and scale. The bonds which are issued at a discount to its par value ensures the timely and successful completion of our debt issuances, in what was still a challenging time for the global economy.

“With respect to the aforementioned transactions, we have noted with concern the insinuation that Goldman Sachs may have made payments to third parties, an allegation that we deny in unequivocal terms. Goldman Sachs has publicly stated: “Other than legal and accounting firms providing professional services, no fees or commissions were paid by 1MDB or Goldman Sachs to external third parties in connection with these transactions, nor have we ever been asked by 1MDB or others to pay such fees or commissions.”

“Like any major company, 1MDB has raised capital on the international debt markets to finance specific projects, the scale of which has required us to do so.

“All of our debt is backed by solid assets, and the total value of our assets (RM44.67 billion as at the financial year end of March 2013), comfortably exceeds the value of our total debts (RM37 billion for the same period),” 1MDB stressed in the statement.

This, again, is another issue raised by DAP’s Petaling Jaya Utara MP Tony Pua that has backfired, showing that he needs to do much more homework before he issues any statement.

Pua told reporters in Parliament House that almost RM1.6 billion in total was deducted from the two bonds as a form of commission fees and expenses.

“These amounts work out to a staggering 11.2 per cent and 9.4 per cent of the funds raised,” Pua said.

He questioned why 1MDB, which comes under the Finance Ministry, had to incur such “scandalous costs” to raise these funds.

The standard fees payable for investment bankers and entities when raising such bonds only ranges between 0.1 per cent and two per cent of the sum raised, Pua said.

He said Goldman Sachs were the arrangers for both fundraisers but they only charged between 0.2 per cent and 1.3 per cent in commissions and fees for other fund raising exercises the company had done for entities such as Apple Inc and also the Mexican government.

“Was 1MDB so idiotic then to be paying fees of 11.2 per cent and 9.4 per cent,” Pua asked.

“Or was Goldman Sachs so unethical that it was charging 1MDB more than 10 times the average market rate?” he further asked.

Pua, a regular critic of 1MDB who at times appears to get rather personal with Prime Minister Datuk Seri Najib Razak, needs to be careful before he opens his gab.

Pua should do more homework and research to maintain accuracy or his integrity and credibility would be severely dented.

To go on a rampage shooting blanks is suicidal as one day Pua would have to go down biting a bullet.