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Erna Mahyuni @ernamh
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Going through the 1MDB report now, this is a thread to help those whose BM is rusty/can't read BM. Won't direct translate everything, will summarise mostly. Link to original piece here:
drive.google.com/file/d/1K-LeMi…
The report is classed an 'executive summary' - pretty much a TLDR. Guess there must be a more detailed report elsewhere with all the numbers detailed.
Background: JAN (the national audit dept) was asked to verify 1MDB's accounts & to give PAC a report.
27/2/2015: PAC directed JAN to do an audit on 1MDB, which commenced 10/3/2015 & continued till 15/6/2015. This was an interim audit, the report presented to PAC on 9-10 July 2015.
This report covered an analysis of fin.statements & investment in joint venture co w PetroSaudi
...as well as murabahah contract note & segregated portfolio company (SPC).
(Please look up these fin.terms yourself as it's not within scope of these tweets to explain)
Auditing continued till 31/1/2016, a Final Report w analysis of fin.statement & fin.position of 1MDB Group...
...for the financial period ending 31/3/2014 & financial disclosures received up to 31/10/2015.
Analaysis also done on investment performance in equities, murabahah notes, fund portfolios, SRC, real estate & energy sector(?)
Doc goes on to mention the objective, scope & methodology of the audit (will skip as a bit technical).
Glaring note though: JAN was limited in carrying out its duties due to some original & vital docs submitted late or NOT AT ALL.
Due to this limitation, it made it harder to determine the actual financial position of 1MDB, its operations as well as related transactions.
Among docs not given: 1MDB's management accts for year-end 31/3/2014 & oversea institutions bank statements.
Auditors were unable to access 1MDB computers, notebooks & servers to get data/info for cross referencing & analysis during the audit.
Goes into the history behind 1MDB's formation (we'll skip that) & the organisational & administrative structure.
Btw 2009 & 2010, 1MDB had only one subsidiary & was involved in equity & real estate investments. 1MDB then expanded into the energy sector...
...taking over 3 IPPs with networks domestically/overseas.
By 2014, 1MDB now had 96 companies.
Now we get to 1MDB group's investment:
Suddenly a wild Terengganu Investment Authority (TIA) appears.
TIA planned to launch Islamic Medium Term Notes worth RM5b to start off.
Fed Gov agreed to give a guarantee to TIA to borrow up to RM5b from the local & foreign fin. markets through IMTN(?) in accordance with the Loans Guarantee Act (Bodies Corporate) 1965
This guarantee covered the principal repayment & interest for a period of 30yrs.
Followed by the approval of the TIA Board of Directors on 15/4/2009.
The prog.agreement was signed 15/5/2009 btw TIA & AmBank.
Fed gov provided the guarantee for the endeavour
But there was some misgivings on Terengganu's side, plan was put on hold & yet the TIA CEO still signed agreements w AmBank on 25/5/2009 and 26/5/2009, despite being directed to put all plans on hold.
This led to him being dropped as a company director 27/5/2009.
Here is where it gets messy - MBI Terengganu objected to the notes issuance, with even the Sultan asking for a report on the unauthorised issuance of IMTN by the TIA.
But the deal was done & the money apparently earmarked for devt of Bidong Island.
Doc then goes into the equity investments, murabahah notes and portfolio funds.
The first joint investment deal was btw 1MDB, PetroSaudi Holdings (Cayman) Ltd & 1MDB PetroSaudi LTD on 28/9/2009.
1MDB held 40pc equity holdings w US1b cash contribution...
...while PetroSaudi held 60pc equity in assets worth US1.5b.
The investment decisions were made in 8 days, without detailed analytical processes/resolving issues brought up by 1MDB board.
Weirdly there were FOUR diff countries registered under the PetroSaudi name but the investment proposal paper submitted to the 1MDB board did not reflect that.
Oops four different COMPANIES. Sorry for the error.
...report then mentions an asset assessment report prepared by Edward L. Morse on 29/9/2008 - the same date he was made CEO of 1MDB, received just a day after the joint investment deal was signed.
Aside...am only on page 5 of the 20 page report so bear with me.
Summary so far if you're lost - a lot of money was involved and a lot of things happened in a crazy short time.
Makes you wonder was due process/due diligence followed? Onwards we go.
More weirdness: apparently the agreement signed contained clauses that did not properly protect the interests of the company.
TLDR: things were signed that did not benefit 1MDB.
Among them a huge US700m advance received by 1MDB PetroSaudi from the Cayman PetroSaudi Holdings.
So this 700m, received on 25/9/2009 needed to be paid in fully by 30/9/2009.
On 30/9/2009 however...1b was moved BY 1MDB to 2 separate accts - 300 into a JV company & 700m to another company to pay back the advance.
YET: approval from 1MDB's board was not obtained before 700m was transferred to that 'other' company.
This should not have happened? Like how could 700m be transferred w/out board signing off. Mind boggles.
It then goes on to go into the details of various transactions - i'll skip to the summary or we'll be here all night.
In the first 4 yrs since 1MDB was formed, from the initial capital (that RM5b), 1MDB investment instruments have changed four times.
Lots of money here - from equity invet of US1b in 2009 to Murabahah notes of US$830m in 2011 & 2012 to an SPC investment portfolion of US2.318b in Cayman Islands.
Investments were cashed in 2015 to pay off various commitments...
In the end, the SPC portfolio was worth in total US939.87m by 31/3/2015.
So in the beginning, there were billions.
Then there was more billions. And supposed 'investments'. And yet, where were the actual returns? Hmm.
Ah, there is an English version of the report!...(thanks @nazerim)
but it's a heavy read.
If you want to read original, it's here: sarawakreport.org/1mdb-report-su…
I'll continue to just summarise the report for those who need it.
Now we go into a Strategic Resource Company (SRC) that invested into...energy.
Its grand plan? To supply MY's long-term coal needs by 2014.
This subsidiary received money from a grant, EPU approved RM20m & the SRC received 15m AS WELL AS a huge loan from the KWAP - RM2b.
Direct quote from the report:
"The SRCI board had approved USD45.50 million for investment in the coal industry in Mongolia without providing a feasibility study."
So a huge investment again greenlighted w/out standard procedure.
And for all its spending, the SRC's ownership was transferred to Finance MInistry Incorporated (MKD) by means of share transfer.
Why was this done? The report doesn't mention it.
Ooh here's some juicy money bits - all the real estate 1mdb spent money on.
TRX
Bandar Malaysia
Land in Air Itam
Land in Alor Gajah
Land in Pulau Indah.
All worth in total: RM2.111b
Report goes into long detail abt TRX justification, will skip that but here's a juicy bit:
A supposed JV with Aabar for TRX didn't happen, impacting TRX dev.
1MDB also used RM288m from gov allocation to pay off debt, instead of its original purpose.
Also for some reason the land obtained in Air Itam was mostly around market price...except for the plots involving Farlim Properties - which were way above market rate. Hmm.
A lot more money was borrowed for these real estate deals-domestic/sukuk alone was RM3.98b.
...nearly 6 pages were dedicated to 1MDB's energy sector investments.
So much money here - JVs ventures w China & Qatar into aluminium refinement in S'wak among them.
From 2012-14, 1MDB invested nearly RM12.07b in three IPPs.
Remember Goldman Sachs? Yeah they get mentioned for giving a briefing on the proposed equity acquisition for Tanjong Energy & Jimah.
Then there's Mastika Lagenda - its acquisition happened w INCOMPLETE proposal paper, also no due diligence report was presented for it. ????
TLDR for energy investments: 1MDB borrowed a lot of money, invested it in various endeavours/buyups but was forced to sell quite a few of its assets - and yet was still left with a ton of debt.
Skipping all the details of the energy deals because seriously, there's so much money, sloppy reporting, dodgy approval stuff going on it would take a whole night to unpack.
In summary - we spent/borrowed a lot of money and don't have much to show for it besides debt.
Almost at the end, guys: a summary of 1mdb's financials.
1MDB group's outstanding debt (foreign & dom.): RM33.71b.
NOT INCLUDING INHERITED LOANS. WTH?
Including the 11 inherited loans? RM41.86b as of 31/3/2014.
Explains GST alright.
Assets? By 2014, 1mdb's asset values came up to RM51.41b.
Yet 1mdb's paid up capital was in reality...only RM1m. Which meant it was not financially stable since it had to rely so much on loans.
These loans did not generate enough cash flow to repay said loans.
If no new loans are taken, it's estimated 1MDB will need RM42.26b to repay loans that will mature btw Nov 2015 & May 2039.
RM4.88b in 2016
RM14.74 in 2023
RM5.14b in 2039
1mdb needs RM1.52b annually from Nov 2015 to May 2024 to repay its loans.
CONCLUSION (by audit dept, not me):
Management & internal controls = 'less than satisfactory'.
Mgmt decisions/board decisions made w/out due process.
Huge investment decisions made via written resolutions w/o discussion, proper valuation.
Many on short notice, high risk...
...1mdb mgmt in several situations presented incomplete/inaccurate info to board of directors before import decisions.
Management sometimes took action WITHOUT board approval.
Or info presented inaccurate, did not correlate.
Record keeping/filing not systematic
1MDB management took actions that were against/did not fully comply with board/shareholder decisions.
My conclusion? 1MDB was a massive sham/shell game from the start.
Thanks for reading & think of me if you need translation/writeups done since I'm probably as broke as 1MDB (though maybe not in billions).
Hope you learned a lot!
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