KUALA LUMPUR: 1Malaysia Development Bhd’s (1MDB) major subsidiaries — 1MDB Energy (Langat) Sdn Bhd and 1MDB Real Estate Sdn Bhd (1MDB RE) — will file their financial statements for the years ended March 31, 2013 and 2014 with the Companies Commission of Malaysia (SSM) by the end of this month, said Prime Minister Datuk Seri Najib Razak.
“The FY13 financial accounts of 1MDB Energy and 1MDB RE will be filed along with that for FY14 at end-October,” said Najib, who is also finance minister and 1MDB advisory board chairman, in a written reply to Petaling Jaya Utara MP Tony Pua at the Dewan Rakyat late Wednesday. It was made available to the press yesterday.
Pua had asked why the two wholly-owned subsidiaries of 1MDB had yet to file their financial statements for FY13 despite it being due in September the same year.
Yesterday at Parliament, Pua told reporters that he was shocked with the short response from the prime minister seeing the severity of the issue.
“The government said they will file soon but did not explain why the accounts were not filed for the past one year. It is one of the shortest answers I have received for a Parliament question,” he said.
Pua noted that 1MDB Energy and 1MDB RE are 12 months late in filing their FY13 financial statements with SSM.
Earlier this year, 1MDB itself had received flak for the delay in submitting its FY13 accounts. The accounts were finally submitted in April after a seven-month delay and a change of its auditors from Ernst & Young to Deloitte Malaysia.
Pua noted that 1MDB Energy, which is a key subsidiary forming part of the twice postponed ongoing exercise to publicly list 1MDB’s energy assets, has not filed its financial statements since Sept 21, 2012 for its FY12 accounts.
This is despite the company having at least RM2.8 billion in loans with collaterals charged to Affin Investment Bank Bhd, he added.
“The accounts are crucial because 1MDB had to impair (write-off) RM1.2 billion in the value of its energy assets which were acquired within the same financial year for RM10.9 billion,” he said.
“The immediate massive impairment of its acquired assets is evidence of significant over-payment in acquisition cost. However, without the subsidiary 1MDB Energy accounts, it would not be possible to identify the cause and source of these accumulated impairments,” he added.
Like 1MDB Energy, Pua said the real estate arm is also heavily in debt. The last known debt amount was RM5.9 billion with collaterals pledged to Ambank and AmInvestment Bank Bhd, he added.
Pua said for 1MDB’s FY13 financial statements, it was disclosed that the group made a net profit of RM778 million on the back of a RM2.7 billion revaluation in property assets.
Without these revaluation gains, 1MDB would have booked a massive loss of RM1.85 billion instead, he added.
Pua warned that the size of 1MDB’s debts coupled with the lack of transparency and good governance point to an extremely high risk of financial collapse not only in the sovereign wealth fund, but the entire Malaysian financial system.
“It is time for Datuk Seri Najib to walk the talk on prudence in financial management. Otherwise, 1MDB’s misadventures will surely cast a deep and dark shadow over any possible ‘good news’ announced by [him] on budget day (today),” he said.
This article first appeared in The Edge Financial Daily, on October 10, 2014.