KUALA LUMPUR: Troubled sovereign fund 1Malaysia Development Bhd (1MDB) on Saturday claimed that a joint venture (JV) with a Saudi Arabian company six years ago, which critics claimed was shady, had earned it a profit of US$488 million (RM1.78 billion).

In a statement on the company’s website, 1MDB president Arul Kanda Kandasamy also claimed that the money it had invested in the JV had been converted into murabaha notes when the plan did not go through.

Earlier reports claimed that 1MDB had put US$1 billion into the deal with PetroSaudi International Ltd, a company with an allegedly sketchy track record.

“In 2009, 1MDB entered into a joint venture with PetroSaudi, which was set up to undertake investments in certain projects.

“Both parties eventually decided not to proceed with the joint venture and our investment was converted into murabaha notes.

“These murabaha notes were paid back in full, with 1MDB earning a profit of US$488 million in 2013,” Arul said in the statement.

He said this fact had already been made public in its accounts for the year ended March 31, 2013.

“1MDB has noted with surprise recent online press coverage and statements regarding a transaction we entered into with a Saudi Arabian company in 2009.

“We have previously provided details on this transaction in our publicly available audited accounts, and in an FAQ that is published on the company’s website,” he said.

Critics of 1MDB have seized on the PetroSaudi deal as an example of the company’s questionable business decisions.

On Feb 18, whistleblower site Sarawak Report published a 26-page document claiming that 1MDB had paid US$1 billion of public funds into PetroSaudi, despite the latter’s US$700 million debt.

The debt was in the form of a loan from PetroSaudi’s parent company to a subsidiary in the deal with 1MDB, called PetroSaudi Holdings (Caymans) Ltd, said Sarawak Report.

“Crucially, under the terms of the joint venture, agreed to by 1MDB, the Malaysian development fund had committed to pay back this whopping great loan to the parent company, PetroSaudi International, on day one of the joint venture,” it added.

Petaling Jaya Utara member of Parliament Tony Pua Kiam Wee had described the deal as “buying a house that has a great big loan of two-thirds of its market value outstanding on the property”.

“Who in their right mind would buy into such a deal?” Pua asked.

In his statement on Saturday, Arul said the company also invested US$2.32 billion in a fund under the supervision of the Cayman Islands Monetary Authority.

He said 1MDB had also disclosed in its audited accounts for the year ending March 31, 2014, how US$1.22 billion of these funds were used.

“On 13 January 2015, we publicly announced the redemption of the remaining US$1.103 billion.

“[And] have subsequently stated that these proceeds are being kept in US dollars, as an asset, to match our US dollar liabilities and, amongst others, to service interest payments on our US$6.5 billion of long-term bonds.” — The Malaysian Insider

This article first appeared in The Edge Financial Daily, on February 23, 2015.