NAJIB'S AMAZING SLEIGHT OF HAND: HOW TO MAKE US$ 2.33 BILLION 'DISAPPEAR'

1MDB issued yet another press release, this one dated on 18-Oct-2015 over here.

For your benefit, I'll summarise their points and then provide my comment

DARI MEJA TUAN GURU ARUL KANDASAMY

1MDB asserts that it made a gain of US $609 million over its investment in Petro Saudi. The gain comprised of cash returns of US $346 million and "capital gain" of $488 million.

The dividend income recognised was RM 589.5 million in 2012 and RM 437.5 million in 2014.

The total was RM 1,027.0 million, which works out "roughly" to USD $346 million, perhaps slightly more

As of end of Financial Year 2014, the amount was recorded as USD $2.33 billion. Remember 1MDB financial year ends in Mar-31, 2014

By Nov 14, 1MDB had redeemed USD $1.23 billion. Remaining is $1.11 billion. 1MDB says that the USD $1.23 billion were substantially utilised for "debt interest payment, working capital and payments to Aabar as refundable deposits for options termination."

In Nov 14, 1MDB obtained a dividend income of USD $130 million.

In Nov 14, 1MDB redeemed a further USD $170 million. The balance is no longer USD $1,11 billion but about USD $940 million

To cut the long story short, the balance units of USD $940 million was sold to Aaabar via a the Binding Term Sheet signed between 1MDB and IPIC, on 27 May 2015, upon which a payment of US$1 billion was made by IPIC to 1MDB.

DARI MEJA SIR WENGER KHAIRY

Okay, so now the question is very simple.

1MDB started out this entire fiasco with total investments of RM 6.728 billion, or USD $1.83 billion into Petrosaudi - Jho Low.

As of Jun -15, this entire investment has been unwound.

So in theory, they should have cash assets of around USD $1.83 billion at least, if they have managed to even break even. But 1MDB claims that they made a whopping USD $739 million, comprising of the USD $609 million mentioned in point 1 and the USD $130 million mentioned in point 6.

So even in theory they should have ended this entire saga with cash assets greater than the investment.

Itu secara theory.

But now comes the reality.

There is no cash left!

Its disappeared!

Let me show you how this silap mata trick was done.

Re-look at part 5.

1MDB admits the initial USD $1.23 billion was "substantially used" for all sorts of stuff - maksudnya, this is no longer there.

Then re-look at point 8.

IPIC gave 1MDB USD $1 billion as "wang pendahluan / REPO / purchase" for the Hanadzlah "units.' That money went straight out to repay the USD $960 million owing to Deutsche Bank, plus whatever interest.

So that money is also not there anymore.

Economically, the best case is that Aabar bought the units for USD $ 1 billion. Then 1MDB does not record a liability. So as not to confuse you, we'll stick to that, although there is an alternate continuation that this is a repo-transaction.

So even in the best case, the money is not there. 1MDB has fully sold the "units" and all the proceeds have "vanished."

So where is the silap mata? How to make USD 2.33 billion disappear?

For part 1, we look at item 5

1MDB says it substantially used USD $1.23 billion for debt interest payment, working capital and payment to Aabar.

The obvious question is how much was used to pay for interest, how much for working capital and how much was given to kengkawan Jho Low?

How could that caused USD $1.23 billion to be used up?

At an average exchange rate of $:RM at about RM 3.2, this means that 1MDB obtained cash proceeds of about RM 4.0 billion when it redeemed the USD $1.23 billion in "units" (kununya)

So where did the money go?

In Note 30 of 1MDB's financial statement, it stated that its payables was RM 3.9 billion. This includes an obligation of RM 1.6 billion being the cost to relocate the Sungai Besi airfield. A portion of this also comprises of accrued interets on all the 1MDB hutang. Non-financial sundry payables were about RM 1.1 billion, including payments to contractors of RM 466.3 million. From the cash flow statement, we know that 1MDB paid RM 1.0 billion and RM 2.3 billion in interest payments in 2013 and 2014.

Okay now we apply some magic.

We know over 1 year, 1MDB needs to pay RM 2.3 billion in interest payments. Over the period of April 14 to Nov 14, that would cover about 7 months. So the interest payments would have been RM 1.34 billion.

Now let's say 1MDB used the proceeds to settle 50% of its sundry payables ("kununnya"), then it means that RM 600 million was used.

So total money expended was about RM 2 billion. I am even assuming that the USD $130 million of dividends received was used to buy cows and send people for Hajj. I

But 1MDB obtained RM 4 billion, so what happened to the remaining RM 2 billion?

Itu kita bayar sama Aabar. RM 2 billion gone.

That is how the first RM 4 billion vanished from the redemption of the USD $1.22 billion vanished in point 5.

Now how did the remaining USD $1.1 billion disappear?

Magic trick number 2.

Remember we have estimated that RM 2 billion was supposedly paid to Aabar to account for the proceeds of the redemption of the USD $1.22 billion of "units".

Now lets, add another RM 3.2 billion to that number - because that was the USD $960 million raised from a consortium of banks led by Deutsche bank. This one also they used to pay to Aabar.

So in total Aabar obtained about RM 5.2 billion in cash or about USD 1.6 billion in exchange rates.

At the end, Aabar gave back USD $1 billion in June 15. Net result, Aabar still up by about $600 million. The USD $1 billion Aaabar gave back in May 15 was used to pay the loan owing to Deutsche Bank.

So in the end, 1MDB ends up with nothing. Aabar ends up still up by at least USD $600 million and Hanadzlah has no more units.

That sir, is how you make USD $2.33 billion disappear!

And that is why the Penyata Kewangan 2015 masih belum diterbitkan!

Note: This has assumed that 1MDB generates $0 operating cash flow from their assets. They actually generate about RM 1 billion a year Operating Cash Flow. So in theory, it is ridiculous to assume that 1MDB had to use the bulk of its redemption to pay interest costs. But overhere, thinking logically is a a crime, so we just take what 1MDB said. - http://spin-kings.blogspot.my/