As simple as withdrawing FD before maturity

Last week and the week before was quite occupied with various meetings with various level of people on the 1MDB matter.

Many versions and views of the good, the bad and the ugly kind was heard. There was also the beautiful and conspiracies. Not missing also are stories of unfulfilled dreams.

The reason to meet various VIPs and VVIPs is nothing more than to seek truth. One chance meeting with Minister at a secret hideaway outside the city was a useful guide.

The Minister said, "We have to focus on our role and work. Put politics aside and address the problem. So the audit by the Accountant General is useful to understand the situation."

A question arise. "Will the terms of reference for AG identify where the fault lies?"

The Minister's answer was firm.

"Lets leave the politics to politicians. The last audited account was March 2014. It is now end of May 2015. We need to ascertain the financial positions, its liabilities and more important, the financial commitments. Only then can we know what to do next. We have to move forward..."

The Minister is not inside Ministry of Finance, thus does not have access to the full information on 1MDB. However, the Minister is quite aware of the perception from certain relevant segment of the public and there was interesting rumours exchanged.  

Husni's statement

That was before last Friday's presentation to the cabinet on proposals to address 1MDB.

When Dato Husni Hanadzlah issued a statement for the Minister of Finance and as the appointed spokesman for MoF on 1MDB matter, it was in sync with the idea of moving forward in the conversation in that meeting.

The statement below:

However, the following portion of the statement mislead the public and became fodder for the critics to spin: 

Given the above, I am pleased to announce that 1MDB has entered into a binding agreement with the International Petroleum Investment Company (“IPIC”) and its subsidiary Aabar Investments (“Aabar”). As part of this agreement, IPIC will make a payment of USD 1 billion, on or before 4 June 2015. This USD 1 billion payment will be used to repay a USD 975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders. The agreement will also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course.

Husni should have explained briefly what the binding agreement was about.

By saying it is an agreement that enable 1MDB to get USD1 billion to pay the USD 975 million, it opens 1MDB to all sort of speculations, new allegations and adding to the existing piles of slanders that need lengthy explanation to the simplistic one liner conclusion and accusations.

TMI twist it as IPIC paying for 1MDB loan. 

This opens up the allegation by Tony Pua and Lim Kit Siang that 1MDB had sought the help of loan shark.

The Sinar Harian frontpage below was twisted by one lost challenger for an UMNO Divisional Leader position as 1MDB borrowed from IPIC to pay a borrowing thus increase 1MDB borrowing.

Not sure how the accounting works out but it is a useful lie to scare off the gullible grassroot.

No bailout

A simple analogy to the "binding agreement" is similar to a 6-month Fixed Deposit that has to be withdrawn before maturity out of some immediate needs for money. It enables the money to be withdrawn before the maturity of the deal.

So it is not a case of new borrowing or loan shark.

Neither is it fresh capital injection which will invite accusation of dilution of Government or rakyat interest in 1MDB. Confidently, it is not a bailout as openly opposed by Khairy. Petronas money is not touched as a bailout piggy bank. 

It is non-sensensical to say that it is new borrowing to cover for expiring loan to Deutsche Bank in which it is claimed that the Deutche Bank borrowing was to invest in IPIC.

This is not a case of  "korek lubang tutup lubang" too. This is an advance payment by IPIC for an agreement that involves settlement of various assets and liabilities between the parties.

Debt reduced by RM16 billion 

This swap of USD financial assets with USD liability will efficiently and in a faster way easily reduce debt by RM16 billion.

If that is too complex for majority and easily duped by perception layman, another example is a reverse repo to withdraw money placed under repo (repurchase agreement).

They new reverse repo deal structured with maturity date to match exactly with the original repo. The reverse repo rate will include penalties so the earning from the earlier repo "deposit" will be less or none.

If that is still not comprehensible, butt out of complex corporate deals and talk of more relevant bread and butter issue. One Minister asked a yes or no question last week. "Is this a business issue or government issue?" All present answered, "Business."  

Since the "binding agreement" is linked to earlier deal, it has to be on a new term. FD withdrawn will be forfeited interest or charged penalties.

This IPIC deal will be matched against the much accused US dollar asset from the liquidation of Petrosaudi investment the from the early days of TIA kept at BSI Singapore. It proves that sovereign wealth fund backed "asset" from the PetroSaudi JV and Murabaha has value and not a fake as slandered by many parties. Refer to Appendix A at the end of this posting.

It is only fair for 1MDB to forfeit the asset in BSI Singapore's custody to match this unplanned withdrawal.

And, it is also fair on 1MDB to take that option since detractors of 1MDB have scarred off banks, railroad Edra Energy listing, pressured land buyer Tabung Haji to forcesell, and applied political pressure on KWAP, EPF, PNB and TH from participating in any investment scheme by 1MDB.

Will not be surprised stationary supplier at Jalan Pudu are pressured not to supply papers and computer printer ink to 1MDB by DAP goons.

The different between this "binding agreement" and a simple FD withdrawal is that it is not only a single deal like FD but will involve "further measures to comprehensively address the various financial asset and liability transactions between" IPIC and 1MDB. The list of transactions between them in Appendix B at the end of this posting.   

What can the USD 1 billion from IPIC do?

It could retire the borrowing to Deutsche Bank that is due to mature sometimes in August or early September. And it help free up asset and the restructuring of 1MDB into separate operational entities.

Critics

One critic of this transaction is that it is an acknowledgement that 1MDB is in trouble. Jebat Must Die wrote it here.

Going by the same argument, few commentaries in some news portal asked that the AG report and PAC should be cleared first to identify the problem before the next course of action. This is similar to the Minister's view and it is not wrong.

Maybe and it is still guessing, the situation has been ascertain and to wait for the formal AG report, PAC, and inter- and intra- UMNO political exchanges will be too long. The immediate financial commitment need be met.

As far as the critics by JMD, it is nothing new.

In one of his statement to parliament, Husni acknowledged 1MDB isnot financially sustainable. Dato Abdul Wahid Omar told a similar explanation in a closed door Pemuda UMNO event. [read Rocky Bruhere]

Dato Najib mentioned his willingness to hear comments against the business model of 1MDB in the TV3 interview. This is something most commentator missed out but not this blogger. Extract from NST report, below:

"We can question (1MDB's) business model and I am prepared to hear different views on that. But I will not condone or accept any instances where funds were "vanished" or siphoned (by other parties), to make a film for example."

The PAC proceeding which has no significance can proceed. The political brickbat can continue till Najib is forced to resign or one faction lost out or UMNO met its demise.

Such cheap spins are going around to implicate Najib's son at Deloitte Consulting, Arul Kanda's absence at PAC, rumour created of 1MDB non-cooperation with auditor, Immigration Director statement on Arul's whereabout, first generation IPP award, CIMB foreclosure on Khairuddin, RM50 billion lawsuit against Tun M, etc.

Which ever side is talking, tell the truth because only the truth should matter. The truth should set us free from the shackles perceived.   

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Appendix A: Brief on the Petrosaudi deal

1. 1MDB invested a total of USD1.83b with PSI, initially as equity, then subsequently as a Murabaha facility carrying a 8.67% p.a. profit rate.

2. From these investments, 1MDB made USD1.058 billion.

3. In the years 2010 and 2011 , 1MDB received a total dividend in cash of USD265m from the Murabaha facility. This was recorded as RM332m (USD106m) and RM512m (USD159) dividends received in the 2011 and 2012 Audited Financial Statements (AFS) respectively.

4. 1MDB eventually exited its relationship with PSI in 2012 with USD2.318b. This generated a profit of USD488m. This was recorded in the AFS for 2013.

5. The USD2.318b was placed in funds under mgmt custodized with BSI Bank and as at Dec 2014 had received cash dividends from the funds under mgmt totaling USD267m.

6. In the Audited Financial Statement for 2014. it was recorded as a dividend of USD131.70 million as at March 2014.

7. In October 2014, 1MDB redeemed USD1.22b in cash from these funds as reported in AFS 2014.

8. In Nov 2014, it further redeemed USD170m in cash leaving behind funds under mgmt of USD939.9m

9. By June 4, it would have fully redeemed the last USD939.9m in Units towards full early settlement of the Deutsche Bank facility.

10. To summarize, for the initial investment of USD1.83b, 1MDB has fully received USD2.858b in capital gains and dividends.

11. This means, NO MONIES were missing from the PSI deal, and USD1.058m CASH returns (56.2% gross returns) was made from the PetroSaudi-1MDB venture.


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Appendix B: 1MDB- IPIC

1) USD1.1 billion (RM4 billion) in BSI Singapore
- Held as collateral for a Deutsche Bank USD975m loan and is apparently not cash but Financial Assets in the form of sovereign-guaranteed investment units).
- This asset is supposed to yield returns.

2) USD1.56 billion (RM5.68 billion) invested in a 2013 JV with Abu Dhabi Govt
- The 50-50 JV is called Abu Dhabi Malaysia Investment Company Limited
- JV is with Abu Dhabi government-owned Aabar Investments PJSC and is to jointly invest in energy and strategic real estate.
http://www.reuters.com/article/2013/04/16/malaysia-1mdb-aabar-idUSL3N0D31US20130416

3) USD1.4 billion (RM5.1 billion) with IPIC
- International Petroleum Investment Co (IPIC) is a sovereign fund wholly owned by the Abu Dhabi Govt and has assets worth USD65 billion
- The money is a part of the USD3.5 billion 2012 bonds that is co-guaranteed by IPIC and 1MDB and appears to be IPIC's share of the funds.

4) USD1.25 billion (RM4.55 billion) refundable deposits with Aabar Investments
- This appears to be a deposit for the options of Abu Dhabi govt Aabar that is tied to the IPO of 1MDB's IPO assets.

In total USD5.06 billion (RM18.43 billion) of the famous RM42b seems to be stuck in various ventures with the Abu Dhabi Govt

Understanding that foreign investment is bi-lateral, it appears that the JV is just not for investments into Malaysia but in both countries.

In fact multiple partnerships a signing was announced in March 2013 where it stated that http://www.1mdb.com.my/press-release/rm18-billion-strategic-partnership

"The various partnerships are the outcome of continuing talks between PM Najib and Abu Dhabi’s Crown Prince and Deputy Supreme Commander of the Armed Forces of UAE, His Highness General Sheikh Mohamed Bin Zayed Al Nahyan, promoting long-term sustainable economic growth beneficial to both countries."

Definitely bi-lateral investments on both sides.

Extract taken from compilation by Lim Sian See Facebook