CAYMAN DEAL RETURNS TO HAUNT NAJIB: MORE MISSING BILLIONS PROVEN

It is an international mystery featuring tropical islands, a Saudi oil company and the fate of billions of dollars of Malaysian state investment fund money. It is also a central enigma in a scandal that has engulfed the south-east Asian country and left Najib Razak, its prime minister, fighting for his political life.

At the heart of the tangled web of global dealings lies a seemingly simple query: what is the story of the more than $2.3bn said to have been held in the Cayman Islands on behalf of 1MDB, the troubled Malaysian government-owned company?

A new Australian court case and documents compiled by Malaysia’s auditor-general raise questions about why the Caribbean investment was set up, how it was run — and what the holdings in it were actually worth. 1MDB, which is trying to cut a debt pile of more than $11bn, is adamant that an internal probe into its past dealings has uncovered no evidence of crimes.

The political storm has spawned a campaign to oust Mr Najib, who drove the fund’s development after becoming prime minister in 2009 and still chairs its advisory board. In July it emerged that almost $700m had been transferred into a bank account in his name. Mr Najib insists the money was not linked to 1MDB but was a political donation from an unnamed Middle Eastern source. The broader 1MDB affair has sparked multiple probes at home and overseas, including in the US, Switzerland and Hong Kong.

The 1MDB Cayman story began in the fund’s early days, when it agreed a joint venture with PetroSaudi, an energy company. That tie-up — a contentious episode in itself — ended in 2012 after a complex chain of deals, according to a section of a draft report by Malaysia’s auditor-general completed in June and seen by the Financial Times.

1MDB said it sold equity and debt interests linked to the PetroSaudi venture to a company called Bridge Partners International Investment, generating $2.32bn of proceeds, according to the auditor-general’s report. The proceeds were in the form of promissory notes — or IOUs. 1MDB used these to buy, via a subsidiary known as Brazen Sky, portfolio investments in a Cayman-registered vehicle called Bridge Global Absolute Return Fund SPC. Bridge Global had been incorporated just a month earlier, in August 2012.

An early alarm about the Cayman dealings came from KPMG, 1MDB’s auditor, according to the auditor-general’s draft report. The accounting firm was unhappy because 1MDB would not give it documents it wanted to help it assess the ownership of the investments, their value and Bridge Global’s financial standing. On New Year’s Eve 2013, 1MDB sacked KPMG as its auditor — having cut loose Ernst & Young over another dispute three years earlier. The fund’s 2012-13 accounts were finally signed off by Deloitte instead.

KPMG, Deloitte and EY declined to comment.

Big questions hang over what exactly 1MDB’s Cayman assets were, how they were invested — and what the little-known Bridge Global’s credentials as fund manager were. Bridge Global did not obtain a Cayman mutual fund licence until November 2013, more than a year after the 1MDB deal. Even Bridge Global’s website is now defunct: as of December 2014, it claimed to have “in excess of $2.5bn under management”.

Nick McDonald, who answered a Hong Kong number for Bridge Global and confirmed he was a director of the company, said he could not comment on the matter. He referred questions to another business in the Chinese territory, named Bridge Partners, which he said was the ultimate manager of the funds in question — whereas Bridge Global had only an “oversight” responsibility.

Bridge Partners did not respond to questions about its background and alleged involvement with 1MDB. Its website says it is active across financial services sectors ranging from consultancy to aerospace leasing. Asked in Malaysia’s parliament last year about Bridge Partners Hong Kong, Mr Najib did not dispute that it had a relationship with 1MDB.

1MDB itself has declined to give full details of its Cayman arrangements. Arul Kanda, the man brought in this year to tackle a crisis of cash flow and confidence, insists all the Caribbean money is now redeemed and accounted for. 1MDB has said it recouped almost $1.4bn in cash by November 2014, with the balance of almost $1bn of fund units then being sold in January to Aabar, a United Arab Emirates state investment fund, for a deferred payment.

“These are facts. These are not things I’m making up for your benefit,” Mr Kanda told the FT.

But the doubts over 1MDB’s Cayman dealings have not gone away. The Malaysian central bank said this month it had recommended the attorney-general press criminal charges against the fund for allegedly making inaccurate or incomplete disclosures between 2009 and 2011 in relation to its Caribbean assets.

Malaysia’s new attorney-general — who was appointed after Mr Najib removed his predecessor in July — retorted that 1MDB had no case to answer. The central bank has now ordered the bulk of the Caribbean funds to be repatriated.

More potential Cayman concerns have sprung from a legal action thousands of kilometres from Kuala Lumpur, on Australia’s Gold Coast. An Australian federal judge on Tuesday appointed provisional liquidators from Deloitte to investigate Avestra Asset Management, a Queensland-based investment business linked to Bridge Global of Cayman. The Australian Securities and Investments Commission says Avestra, which did not respond to a request for comment, is being probed to find out if there were suspected breaches of the law or potential losses to investment scheme members.

A 200-page affidavit filed to the court last month by Glenn Childs, a senior securities commission investigator, says Avestra owned a stake in Bridge Global as of March last year. Other corporate records show the two businesses share directors. No other entity of a similar name to Bridge Global is listed in Cayman Islands Monetary Authority records.

1MDB would not confirm or deny whether the Bridge Global in the Avestra case was the manager of its billions. Since 1MDB was not mentioned in the Australian case, the fund argued, it was unable to offer any comment. - FT