1MDB began to unravel at the end of 2014, when it failed to repay an RM2 billion bridging loan to a group of local lenders.
The Malaysian fund was given some breathing space when tycoon Ananda Krishnan stepped in with another loan of the same amount.
But 1MDB’s unravelling accelerated when a consortium of banks led by Deutsche Bank abruptly demanded an early repayment of a US$975 million loan in May 2015, four months ahead of its due date.
Presiding over this tumultuous period was 1MDB chief executive officer Arul Kanda Kandasamy, who was brought in for his expertise in debt restructuring.
But Arul Kanda has done more than just restructure debt, becoming the public face of 1MDB in a way that his predecessors have not done and vigorously defending the fund against allegations of misappropriations.
The Deutsche Bank loan recall led to a series of events that remains unresolved to date.
Faced with a cash crunch, 1MDB got an RM1 billion advance from Abu Dhabi’s International Petroleum Investment Company (IPIC) to pay off the Deutsche Bank loan.
But the 1MDB’s deal with IPIC turned sour, prompting the two parties to go for arbitration, and later a settlement, which saw 1MDB having to pay around US$1.2 billion to IPIC.
This was despite an earlier US$3.5 billion 1MDB claimed it already paid to IPIC but was unaccounted for. Both parties have since entered into “goodwill” discussions on the matter.
So, what was the Deutsche Bank loan meant for?
Loan for an already settled payment
Officially, the purpose of the loan, as documented by the Public Accounts Committee (PAC), was stated as payment to British Virgin Islands-based Aabar Investment PJS Ltd (Aabar BVI) for the termination of options granted to the company under two previous power assets deal.
But curiously, 1MDB said it had already paid US$993 million to Aabar BVI for the same purpose when it partially redeemed its Brazen Sky “fund units”, which also had its own controversy. Brazen Sky Ltd is a 1MDB subsidiary.
Why did 1MDB need to take out a US$975 million loan when it had already paid US$993 million for the same purpose? PAC member Tony Pua (photo), had during a hearing on Dec 1, 2015, grilled Arul Kanda about this.
After sidestepping the same question a number of times, Arul Kanda said he had to get back to the PAC on the matter.
More than two years since that hearing, Malaysiakini, in this interview with Arul Kanda last week, again asked him to explain the real purpose of the loan, but the answer was not forthcoming. Below is a transcript of that conversation:
Malaysiakini: Moving on, the second issue you had to deal with was Deutsche Bank.
Arul Kanda: Guys, I am really sorry but these are all historic, it’s been covered multiple times.
Malaysiakini: The reason we are raising it… is because it was raised in the PAC but because of the circumstances at the time, it was not addressed. (PAC member) Tony Pua in the PAC meeting did ask what the US$975 million loan was used for and you said you had to get back to him…
Arul Kanda: No, it is in the PAC report. There’s a section in the PAC report that describes every debt and the usage of the debt.
Malaysiakini: The purpose (in the PAC report) said it was for the termination of the (Aabar) options but at that time there was no clear answer (from you). Can we confirm that it was indeed used for the termination of the options?
Arul Kanda: I am sorry, you have to refer to what is in the PAC report if you are asking your question based on that… I haven’t read the report in some time, so I don’t want to give you the wrong information.
Malaysiakini: We didn’t get the answer from the PAC report so we are asking you to elaborate.
Arul Kanda: I am sorry, it’s been some time back. I need to check my notes… The PAC report was very detailed, it gives you what each loan was used for. It is very detailed, please refer to that.
Malaysiakini: It was pointed out to you in the PAC (hearing) that YB Tony Pua asked for confirmation and you said you’ll get back to him.
Arul Kanda: Well again…
Malaysiakini: Did you get back to him?
Arul Kanda: You have to look at the report and the answer is there in the report.
Malaysiakini: It’s not in there, that’s the thing.
Arul Kanda: I am sure it is there, I haven’t read it in some time but as far as I am aware, every loan that was taken was described in the report and the use of the loan described in the report.
Malaysiakini returned to the same topic in a later part of the interview, this time with the PAC transcript which was read out to Arul. The particular excerpt is as follows:
Tony Pua: Okay. That is fine. So the agreement has the purposes, where one of the purposes was to terminate the options. But what was the money actually used for?
What was the use of the US$975 million that was received?
What was the use of the US$975 million that was received?
Arul Kanda: YB, that loan and that amount were just done after the accounting period… So I would like to get back to YB with the answer. As this is not in our accounts – accounts for this year (is) not ready, so I have to come back to you on that.
Malaysiakini: Have you updated your info?
Arul Kanda: Again, I have to check my notes. It happened two years ago in fact, so I am not sure. But as I told you, if your question is on the use of the fund, the PAC report has every debt 1MDB took, including the Deutsche Bank loan, and there is a description there of what it was used for.
Malaysiakini: The assigned purpose of the loan was mentioned in the PAC report, but we want to know the actual (use).
Arul Kanda: I said, I don’t have the report. If you have it in front of you, please have a look. Is the US$975 million in the PAC report?
Malaysiakini: There is an assigned purpose but when YB asked you about the actual…
Arul Kanda: The fact is in the PAC report, so please look at the PAC report and use that. That’s done by the National Audit Department, which looked at all the info.
The DOJ version
Arul Kanda was right that the PAC report stated the purpose of the loan was for the termination of the Aabar options, as it was the same justification 1MDB provided to Deutsche Bank when the loan was taken out.
But throughout the PAC proceedings, the 1MDB CEO did not personally put on record what the money was really used for and also refused to do so during this interview with Malaysiakini.
The US Department of Justice (DOJ), in its court filings, noted that the termination of the Aabar options was the official reason but gave a different story about how the money was really spent.
The US$975 million loan was refinanced from an earlier US$250 million loan, also from Deutsche Bank.
According to the DOJ, between May 2014 and September 2014, around US$175 million was diverted to Aabar-BVI and another US$681 million was diverted to Seychelles-incorporated Aabar Investments PJS Ltd (Aabar-Seychelles).
Aabar-Seychelles, like Aabar-BVI, bore a similar name to the then International Petroleum Investment Company (IPIC) subsidiary Aabar Investment PJS, but had no legitimate affiliation with the Abu Dhabi-based company.
Aabar-BVI was mentioned in local public records, including the PAC report, which noted that the Auditor-General’s Department could not verify if it was a legitimate subsidiary of IPIC.
Interestingly, Aabar-Seychelles was never mentioned in any local public records related to the 1MDB investigation.
After the diversion, the money passed through several intermediaries before ending up in the accounts of, among others, Malaysian businessperson Low Taek Jho (photo), Malaysian Offical 1 and a 1MDB official, according to the DOJ.
It claimed the money was used for, among others, jewellery which Low bought for supermodel Miranda Kerr, and the superyacht, Equanimity.
The web of transactions is too complicated to be listed here but is available on Malaysiakini‘s microsite, ‘Stolen’ 1MDB Funds: The DOJ Lawsuit Revisited, under the ‘Options Buyback Phase‘.
The court filing also stated that part of that money was “recycled” by sending it to Brazen Sky Ltd through intermediaries, then sent out again through the same intermediaries before returning to the 1MDB subsidiary.
“The purpose of this unnecessarily complicated funds flow was to create the appearance that fund units in the Brazen Sky Account were being redeemed for cash and being paid forward to 1MDB, thereby fraudulently disguising the fact that the fund units were illiquid and relatively worthless,” the DOJ said in its filing.
However, Arul Kanda maintains that whatever is contained within the DOJ filings have yet to be proven.
“Let me be clear that the DOJ may be right, they may be wrong, I do not know but the fact is a lawsuit had been filed and any advocate will make his case in the strongest way.
“You still need that to go through a court process, the hearing and there still needs to be a defence and then there needs to be a decision. Only when the judge decides can you say something that you allege is a fact or not.
“And this, I think, has been missed. If you look at the opposition’s narrative in Malaysia, the narrative is the DOJ’s lawsuit said this, therefore A, B, C, D and E are guilty.
“But they do not attempt to explain to the people that it was just fillings. You haven’t had the hearing, defence and decision yet,” Arul Kanda said.
– M’kini
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