MoF confirms former govt bailed out 1MDB via BNM, Khazanah

This article first appeared in The Edge Financial Daily, on May 25, 2018.
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PUTRAJAYA: The Ministry of Finance (MoF) has confirmed that the former government led by Barisan Nasional bailed out troubled 1Malaysia Development Bhd (1MDB) through funds raised from Bank Negara Malaysia’s (BNM) purchase of a piece of land for RM2 billion and a RM3 billion preference share issue by Khazanah Nasional Bhd.

In a statement yesterday, Finance Minister Lim Guan Eng said his ministry confirmed reports published by The Wall Street Journal and Reuters on payments made by BNM and Khazanah to the MoF — then under former prime minister Datuk Seri Najib Razak’s watch, which were then used to service the debt obligations of 1MDB.

“As highlighted via the press release issued by MoF on Tuesday, MoF had made payments on behalf of 1MDB amounting to RM6.98 billion due to 1MDB’s inability to pay. This amount includes the payment made to lPlC (International Petroleum Investment Co) as part of the RM5.05 billion settlement agreement,” he said.

Guan Eng added that the sources for the payments made to lPlC or its subsidiary Aabar Investments PJS Ltd on behalf of 1MDB included the second redemption of redeemable cumulative convertible preference shares by Khazanah amounting to RM1.2 billion, as well as the sale of land in Kuala Lumpur to BNM for RM2.07 billion.

“On Dec 14, 2017, MoF through its indirectly wholly-owned subsidiary Hartanah Mampan Sdn Bhd entered into a sale and purchase agreement with BNM to sell a piece of land strategically located adjacent to Sasana Kijang,” he said.

On Jan 8, The Edge Malaysia weekly noted that it was rare for a government agency to buy land from the federal government and for the transaction to be done at market price. At RM2 billion, the price of the 2,430,212.4 sq ft parcel works out to RM823 per sq ft.

Questions were also raised as to whether BNM should be acting like a real estate developer, buying such a large piece of land for such a huge sum and then taking its time to put it to use (landbanking).

Later at a press conference, Guan Eng said the federal government remains committed and has the capacity to fulfill its financial obligations.

“It is clear that it was a bailout ... based on the payments made by the government [on behalf of 1MDB] and that 1MDB was already insolvent in 2016.

“We still have money to pay, but the point is imagine if these monies were used to benefit the ordinary people of Malaysia, how much we would have benefited. There will be a lot of difference. Instead, it was used to pay off the largest scandal in history,” he said.

“There is a back-to-back guarantee by the federal government [for 1MDB debt]. We will honour that commitment and pay as scheduled,” he said.

Guan Eng also said the Pakatan Harapan government will evaluate whether those involved in bailing out 1MDB will be held accountable.

“Everyone [involved in the bailout] should be held accountable. Of course, if they are instructed in writing to take certain actions, I am sure they have some justifications. That is something we have to evaluate fully,” he said.

Guan Eng also said certain officials involved in the deals of bailing out 1MDB have covered themselves with written authorisation.

“There were all sorts of pressures [on Treasury officials]. Otherwise, I do not think they would make these payments. Of course, they have covered themselves in the sense that there was written authorisation [but] we are talking about [deals worth] billions of ringgit here.

“We are looking at those Treasury officials who know that without written authorisation, their heads will be on the chopping board, so they have the necessary written authorisation, but I think you are right that they were under all sorts of pressure,” he said.

On Dec 27 last year, 1MDB claimed that the cash it paid IPIC was from the proceeds of its ongoing rationalisation programme that involved selling off its holdings in power plants and land.