10 Apr 2016
Slightly over half a year since its conception as Terengganu Investment Authority, the now Finance Ministry-owned 1MDB made its first deal – and blunder.
On Sep 30, 2009, it parted with a massive US$1 billion after less than two weeks of due diligence – a whopping US$700 million of which went to an unrelated firm, Jho Low-linked Good Star Limited.
On social media that day, Li Lin Seet, an associate of Low whom Sarawak Report linked to the deal, mentioned feeling “the earth moving”. Eleven days later Li was in Las Vegas, guzzling world’s expensive champagne, Cristal.
Over in Kuala Lumpur, however, the 1MDB board was in a less celebratory mood.
“Visibly upset” was how then Felda Holdings managing director and 1MDB board member Bakke Mohd Salleh (photo) described the 1MDB board when it found out US$700 million went to Good Star.
It also had other reasons to be “shocked and angry” – it had okayed a deal with PetroSaudi only if terms like independent valuation of assets were complied to. They were not.
“Flabbergasted”, Bakke decided he wanted nothing to do with 1MDB anymore. He resigned.
But the US$700 million – which then 1MDB CEO Shahrol Azral Halmi said actually went to PetroSaudi through its subsidiary Good Star – was not the end of 1MDB’s generosity to the little known Saudi firm.
Oct 3, 2009 – 1MDB board is “shocked and angry” over the Good Star transfer and issues a stern warning to management for flouting their advice.
Among others, it wants the US$700 million returned and banked into the proper accounts, a written confirmation of the value of the asset, a presentation by Edward L Morse and for another independent valuation.
“Flabbergasted” and “annoyed” with management’s non-compliance, Bakke informs the board he does not want to be associated with 1MDB anymore.
Oct 10, 2009 – 1MDB board instructs the management to produce a shortlist of 10 independent valuers to be approved by the board of advisors, so PetroSaudi Caymans can agree upon a second valuation.
Oct 19, 2009 – Bakke resigns from the board
Nov 7, 2009 – Shahrol tells the board that the board of advisers chairperson, Prime Minister Najib Abdul Razak, says there is no need for a second valuation.
Najib, however, instructs the board to appoint a consultant to do a valuation of joint assets.
(The auditor-general’s department found no evidence to back Shahrol’s claim)
December 2009 – The agreement between PetroSaudi and owner of the oil fields is terminated.
March 31, 2010 – 1MDB sells its 40 percent stake in the joint venture for US$1.2 billion in murabahah (loan) notes, essentially lending the cash to the PetroSaudi.
Sept 14, 2010 – 1MDB takes up a US$500 million loan so it can buy murabahah notes from PetroSaudi for the same amount. But 1MDB’s loan is due in 2013, while its murabahah notes will only mature in 2015.
The murabahah fundraising is said to be to buy a stake in oil and gas firm GDF Suez, but auditors KPMG did not check if the funds were used to buy this firm.
Shahrol says it was done with board approval, but the Auditor-General’s Department says the approval was for transfer to PetroSaudi International.
(PAC asks if the audit firm was aware of US$160 million of that, as well as a subsequent murabahah subscription of US$330 million which went to Good Star. The audit firm says it was not.)
Sept 15, 2010 – KPMG takes over from Ernst & Young as auditors.
KPMG obtains a letter from the Saudi ambassador in Kuala Lumpur, international consulting firm Helvetica and Banque Saudi Fransi vouching that PetroSaudi’s shareholders Tarek and Prince Tukri have good financial standing.
It is forced to do so as Saudi firms are not compelled to publish their financial statements.
March 2011: 1MDB lends another US$330 million to Petrosaudi.
September 2012 – 1MDB redeems all its murabahah notes totalling US$2.318 billion which becomes investment “units” in the Cayman Islands, through an investment with BSI Bank Singapore.
The Auditor-General’s Department notes the initial US$1 billion investment changed forms four times from 2009 to 2012, finally held as a portfolio in the Cayman Islands.
Shahrol tells PAC this shows the PetroSaudi venture succeeded – total outlay US$1.83 billion in cash, total recovered US$2.318 billion in investment units.
Part 1: 1MDB’s ‘original sin’ and Jho Low
Part 2: PetroSaudi’s US$1 billion ruse