Making Sens - 1MDB – A wonderland saga

21 Apr 2016 / 00:10 H.

    "CURIOUSER and curiouser," said Alice as she grew to more than nine feet high in Lewis Carroll's fabled novel Alice's Adventures in Wonderland.
    This is the likely response of non-partisan readers of often contradictory articles about 1Malaysia Development Berhad (IMDB), the report by the Public Accounts Committee (PAC) and strongly-worded statements by Abu Dhabi's sovereign wealth fund, International Petroleum Investment Company (IPIC).
    In a joint announcement on April 11, IPIC and its subsidiary Aabar Investments PJS (Aabar) categorically denied Aabar Investments PJS Ltd, established in the British Virgin Islands (Aabar BVI), is "an entity within either corporate group". Both IPIC and Aabar also said they had received no payments from Aabar BVI.
    In response, 1MDB said it was "curious" IPIC and Aabar had waited "until April 2016" to issue a denial and was surprised "neither IPIC nor Aabar has knowledge of, nor has benefited from, payments made by IMDB to Aabar BVI."
    Under a debt-asset swap agreement on May 28, 2015 involving Aabar, Malaysia's Ministry of Finance (MOF) and 1MDB, IPIC agreed to:
    » provide US$1 billion to enable 1MDB to settle its liabilities;
    » pay interest on the US$3.5 billion bonds;
    » repay the US$3.5 billion bond; and
    » forgive certain 1MDB debts.
    In return, 1MDB would transfer to IPIC by June 30, 2016 assets with an aggregate value of all the sums paid by IPIC.
    DAP MP Tony Pua says the value of assets 1MDB must transfer to IPIC total US$4.7 billion – US$1 billion to settle 1MDB's liabilities, US$3.5 billion for the 2012 bonds and up to US$200 million in interest payments.
    Two days after IPIC's statement, 1MDB did an about-turn and acknowledged it could have been a victim of fraud.
    On Monday, IPIC accused 1MDB and MOF of failing to honour their obligations and terminated the debt-asset swap deal.
    According to a news report, a US$50 million payment on the 1MDB bonds was due on Monday, which IPIC had undertaken to pay.
    This sequence of events prompts several questions.
    If neither IPIC nor Aabar received the US$3.5 billion 1MDB reputedly paid to Aabar BVI in four tranches, who was the lucky beneficiary? Can 1MDB recover the US$3.5 billion paid to Aabar BVI?
    Did 1MDB check who owned Aabar BVI? IPIC's annual reports from 2011 to 2014 and the interim 2015 report show Aabar BVI isn't listed as a subsidiary.
    Does IPIC's termination of the debt-asset swap agreement mean 1MDB's financial obligations could increase by US$4.7 billion? If 1MDB doesn't have sufficient funds, will MOF have to assume responsibility for paying 1MDB's debts?
    Was the US$50 million on 1MDB bonds paid on time? Would non-payment trigger a cross-default on 1MDB's other financial commitments estimated at US$5.1 billion?
    PAC said it was unable to confirm a US$2.1 billion payment to Aabar BVI while another US$1.37 billion was transferred to the latter without approval from 1MDB's board.
    Since banks require a board resolution authorising a transaction before transmitting the funds, how was the US$1.37 billion transferred to Aabar BVI without 1MDB directors' approval? Did 1MDB auditors query this unsanctioned payment to Aabar BVI?
    The PAC report showed 1MDB's management, helmed by then CEO Datuk Shahrol Azral Ibrahim Halmi, ignored board directives on 19 occasions, deceived the board six times and the auditors thrice.
    Shahrol was able to disregard 1MDB directors because the real power was with the shareholder, the bipartisan PAC report suggests.
    Article 117 of 1MDB's Articles of Association requires the prime minister, as chairman of the advisory committee, to approve any appointments and terminations of directors and top managements as well as any "financial commitments (including investments) restructuring or matters involving government guarantees."
    The PAC has recommended enforcement agencies investigate Shahrol. Can Shahrol claim as a defence that he was carrying out the directives of 1MDB's ultimate approving authority?
    An early warning signal occurred last year. In April 2015, Khadem al-Qubaisi was abruptly removed as IPIC managing director and Aabar chairman while Mohamad al-Husseiny was replaced as Aabar CEO.
    Did news that Qubaisi and Husseiny were no longer employed by IPIC and Aabar respectively prompt 1MDB to contact the two Abu Dhabi corporations?
    When Abu Dhabi's central bank froze the accounts of both Qubaisi and Husseiny and directed major banks in the United Arab Emirates to provide information about these two men's deposits and transactions, did an amber light flash in 1MDB's corporate headquarters?
    Reports indicate both men are now also being investigated by Swiss authorities.
    In short, 1MDB is a wonderland saga; it is like Lewis Carrol's novel – with a multiplicity of questions and a paucity of rationale answers.
    Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with. She can be contacted at

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