Chan Kong Choy (“CKC”) will put forth the following arguments in his own (legal) defence. Rebut them if you can.

1. Yes he issued Ministry of Transport (“MOT”)’s Letters of Support. They were however meant to be as what their names suggested – mere letters of “support”. In commercial transactions, Letters of Support or its variants such as Letters of Comfort or Letters of Awareness are issued to evince acknowledgement and moral support/suasion of the transaction but they are not intended to constitute a binding guarantee on the part of government. Otherwise they would be called Letters of Guarantees. Therefore you can’t accuse him of not knowing that only Ministry of Finance (“MOF”) could issue guarantees when he says that the letters of support issued by him on behalf of MOT were not intended by him in the first instance to constitute a government guarantee erroneously issued without MOF’s approval!

2. Now neither PKA nor PKFZ issued any Government bonds or sovereign debt securities. I believe (correct me if I were wrong) that it was Turnkey contractor, Tiong’s Kuala Dimensi Sdn. Bhd, (“KDSB”) that issued the bonds, given triple A rating then by rating agency Malaysian Rating Corporation Berhad (“MARC”) to provide confidence to whosoever the bondholders to subscribe for KDSB’s bonds. So CKC can now say that if MARC mistakenly rated MOT’s letters of support higher on assumption that they were as good as guarantees approved by MOF, when in fact they were not, it is not his (CKC’s) problem. The bondholders relying on this mistaken notion should direct their queries to lead arranger, Merchant Bank & legal advisor and MARC why they thought so highly of a mere letters of support as distinct from govt. guarantees. They should know that it was not PKA nor PKFZ that issued any Government bonds. It was KDSB, a private company that issued the bonds. These bonds were therefore commercial papers/private debt securities. It would be exceptional for any Govt to try guarantee commercial papers/private debt securities of a private entity! It would be different if perception were skewed by PKA itself a govt agency issuing the bonds. But it was not. It was KDSB! Now there was nothing wrong for MOT to issue letters of support to provide moral support for a private company like KDSB. After all its turnkey copntractor for govt PKFZ project. The onus is however on the lead arranger, Merchant Bank & legal advisor and MARC familiar with standard government procedures, compliance and control processes to conduct the due diligence exercise, draw difference between leters of support from those of guarantees, and advise correctly KDSB’s bondholders that letters of support were not of same stature as government guarantees, which in any case MOT could not issue without MOF’s endorsement!

3. Next question asked – if letters of support do not tantamount to financial commitment of a government guarantee why does the Public Coffer now have to be burdened with a RM12.5 billion debt? Short answer is : letters of support issued by MOT have since changed their “character” and “status” to full fledged government guarantees because of government’s retrospective ratification of these letters of support, signaling to the bondholders and market that they could treat the letters of support as government guarantees with MOF’s full backing!

Why is that (as stated in 3. above) so? CKC will say, “Don’t ask me – ask the government, the cabinet, the government’s legal advisor (AG) or even MOF. Don’t ask me because I am already out of government/cabinet when these retrospective ratification decisions were taken to make mere letters of support become government guarantees. The points above show I am innocent and not implicated. Period. I rest my case”.

“When has it been the practice of government to issue letter as a form of moral support to a private company?” – Loh.

Even if one takes “support” here to include financial and management support, it means MOT backs PKA (as distinct from private co. KDSB per se), to put govt. agency PKA in moneys and funds, to honour its financial commitments as and when properly due to KDSB provided – KDSB keeps its bargain to honour and perform its contractual obligations to PKA. (Its not a guarantee, a guarantee means a commitment to answer someone else’s debts, and if one means KDSB’s debts to its bondholders, definitely there was no such guarantee.

Surely even such support does not include incurring govt commitment to PKA to pay KDSB if KDSB does not perform its part of the contractual obligations, or if KDSB simply charges exorbitant amounts in variation orders unsupported by works done or if the entire project becomes no more viable.

If rating agency MARC gave triple A rating to KDSB’s bonds and lead arranger, Merchant Bank & legal advisor advised bondholders that KDSB’s bonds were of high quality/yield because paymaster PKA had govt financial backing – and all bond holders got impressed – it does not translate to meaning that govt has given any guarantee directly to bondholders of KDSB via these MOT’s support letters that if KDSB could not honour its payments, Govt. would step in to be answerable for KDSB’s debts….

What I am saying is that CKC can try absolve himself by saying he gave on behalf of MOT the letters of support in sense explained above to establish how financially credible PKA was – and not to establish how financially stable KDSB was though market/bondholders might be entitled to infer from financial credibility of govt agaency PKA, the paymaster! It does not mean that he had given any letters of support that could reasonably could be construed as a government guarantee to KDSB’s bondholders that if KDSB does not honour its bonds commitment, the govt of Malaysia would honour on KDSB’s behalf!