Facts in response to Just Justo
1. Tun Mahathir continues to allege that ‘vast amounts of money have disappeared’, but provides no justification or facts to back this claim. He first claimed that RM 42billion was missing. Then, when 1MDB provided a summary of how the RM42 was spent, he started saying some of the RM42 billion is missing. Now, Tun Mahathir has resorted to saying that ‘vast amounts of money have disappeared’. As we have stated before, this continuous shift in numbers and allegations is perplexing.
2. Tun Mahathir is repeating the same old questions about 1MDB’s dealings with PetroSaudi, a business relationship that ended in 2012, despite the fact that we have responded to this in detail on a number of occasions. With respect to the “US1.9 billion loan” Tun Mahathir has referred to, the facts are as follows:
- Further to an earlier joint venture arrangement in 2009, 1MDB invested USD1.83 billion cash in murabaha notes issued by JV Co, a company that, by then, was 100% owned by PetroSaudi following the termination of the joint venture in March 2010.
- In June 2012, this entire amount was repaid by way of conversion into shares of Petrosaudi Oil Services Limited for a value of USD2.22 billion.
- Subsequently, in September 2012, 1MDB sold its shares in PetroSaudi Oil Services Limited for USD2.318 billion and received fund units in a Cayman registered fund. These fund units were owned by 1MDB via its 100% subsidiary, Brazen Sky, and held through BSI Bank Singapore as custodian.
- Accordingly, 1MDB invested a total of USD1.83 billion with PetroSaudi as murabaha notes, and ultimately received USD2.318 billion of fund units, representing a gain over time of USD488 million.
The information referred to above can be found in the notes to 1MDB’s financial statements. Accordingly, contrary to Tun Mahathir’s claim, 1MDB has clearly provided detailed information on this – as above – on a number of occasions, including most recently on 16 June 2015 in a direct response to a previous allegation raised by him.
It is also important to highlight that a) the murabaha notes were guaranteed by PetroSaudi (thereby having a lower risk profile than equity) and b) 1MDB had an option to convert the murabaha notes into equity. Accordingly, 1MDB exercised caution by reducing its risk profile from equity to debt, thereby benefiting from a fixed rate of return above its cost of capital whilst having the right to participate in future equity upside through the conversion option.
3. Tun Mahathir has also repeated his claim that 1MDB overpaid for its IPPs. As we have stated before, like any business, 1MDB only acquires assets when we are convinced that they represent compelling long term value. In this particular case, 1MDB purchased power plants from the original private sector owners i.e. first generation IPP investors, who were granted lucrative, long term, fixed price contracts during the time Tun Mahathir was Prime Minister.
The values paid for the acquired assets were based on independent advice from financial, legal, accounting, tax and technical advisors. In addition, 1MDB took a long term view and considered the social and economic impact on the country in arriving at a final valuation.
In particular, it is important to note that we acquired our first energy assets in 2012, and have built this into the second largest independent power producer in Malaysia with a strong presence in international markets within three years. In total, 1MDB has successfully consolidated three independent companies with 13 power plants and 5594MW of net generating capacity.
As such, we believe that the value we paid - which may have involved a premium in certain instances, as is common when acquiring another business - is commensurate with their future potential and overall benefit to the nation.
4. Having responded yesterday to misleading statements by YB Tony Pua, an opposition politician, in relation to the IPIC transaction, we now note that Tun Mahathir has raised many of the same questions.
Commercial negotiations are ongoing between 1MDB and IPIC to reach a definitive agreement post execution of a binding term sheet. This will include discussions on which assets 1MDB transfers over to IPIC as part of this deal, and we fully intend to share further information once a final agreement is reached between the parties.
With respect to how 1MDB intends to substantially reduce its RM42 billion debt, the binding term sheet executed with IPIC is a key component of the 1MDB rationalisation plan as announced by the Ministry of Finance on 29 May 2015. A definitive agreement with IPIC will ultimately result in a debt reduction of approximately RM16 billion.
Further to the strategic review announced on 18 February, and as confirmed in the rationalization plan announced on 29 May:
- 1MDB announced on 12 June 2015 an RFP process for the Bandar Malaysia development, to seek development partners for the 486-acre project in Sungai Besi.
- 1MDB announced on 30 June 2015 an intention to appoint an independent real estate consultant to help review expressions of interest received for the company’s land parcels in Air Itam and Pulau Indah.
- 1MDB is actively pursuing various options with respect to the monetisation of Edra Energy and, as has been reported in the media, has received significant interest from potential investors in both Malaysia and abroad.
Combined, these actions will allow us to reduce 1MDB’s debt significantly, and ensure that maximum value is generated for the 100% ultimate shareholder, the Government of Malaysia.