This article first appeared in The Edge Malaysia Weekly on March 1, 2021 - March 7, 2021

BECAUSE Goldman Sachs and associates of financier Low Taek Jho insisted that the terms of a government letter of support for 1Malaysia Development Bhd’s (1MDB) US$3 billion bond issuance be changed, the document was essentially “upgraded” to a letter of guarantee. A witness at the trial of Datuk Seri Najib Razak revealed this a fortnight ago, providing a glimpse into how such documents are approved by the Cabinet. The bond issuance was to raise funds for the development of the Tun Razak Exchange (TRX).

In this particular instance, the Attorney General’s Chambers (AGC) was not even consulted on the amended terms of the letter, which favoured the loan arranger Goldman Sachs and left debt-laden 1MDB even more exposed. The AGC was only informed of the changes after the fact.

Former 1MDB CEO Mohd Hazem Abdul Rahman told the High Court he was not involved in the TRX fundraising exercise, but testified that Ministry of Finance (MoF) officers were not too happy with the terms of the letter.

His predecessor Datuk Shahrol Azral Ibrahim Halmi also testified last year that some officers in MoF had expressed discomfort over the letter. “There was some pushback over the letter, because MoF did not view the letter as a letter of comfort as it was drafted more like a letter of guarantee,” Shahrol said.

During the cross-examination of Hazem, Najib’s lawyer Wan Aizuddin Wan Mohammed revealed that Goldman Sachs had gone to MoF to propose changes to the terms and conditions of the letter of support after the Cabinet had already given its approval for the document in February 2013.

The retrospective changes proposed by Goldman Sachs and associates of Low — 1MDB’s general counsel Jasmine Loo Ai Suan and its chief investment officer Terence Geh Choh Heng — appeared to favour the bank, and seemed to anger MoF officials, who had written to the AGC to detail the legal ramifications of the letter of support, as well as on the proposed joint venture (JV) between 1MDB and an Abu Dhabi state-owned company.

In fact, the Cabinet had previously approved a letter of support for the US$3 billion bond issuance after a memorandum in support was tabled by Najib at a Cabinet meeting in February 2013.

Obtaining that letter was not a difficult matter given the considerable power that Najib then wielded as prime minister, finance minister and the corporate representative of MoF Inc.

At Cabinet meetings, few would have dared gone against his recommendations.

The 11th prosecution witness in Najib’s 1MDB-Tanore trial, former deputy chief secretary to the Cabinet Tan Sri Mazidah Abdul Majid, shed some light on the Cabinet process for approving such letters during her time on the stand.

In February 2013, Najib had tabled a memorandum to the Cabinet relating to MoF Inc’s proposed issuance of a letter of support for a special purpose vehicle (SPV) under 1MDB that would be used to raise funds for the development of TRX.

Najib had pitched that “in the event that 1MDB as shareholder of the issuer fails to provide the required funds … Malaysia shall then step in to inject the necessary capital into the issuer or make payment to ensure the issuer’s obligations are fully met”.

In effect, this meant that the Malaysian government guaranteed, one way or another, the US$3 billion that the already heavily indebted 1MDB was borrowing.

However a month later — after General Sheikh Mohammed Zayed Al Nahyan, the Crown Prince of UAE, had come to Malaysia to officially sign the JV between the two state-owned entities — Najib again brought the memorandum for the letter of support to the Cabinet, but with some changes to the terms, as suggested by Goldman Sachs.

One of the new terms was that the global investment bank would be given sole right to allocate subscriptions by domestic investors in the secondary market.

Eventually, the letter of support was issued with Najib signing off on it as the representative of MoF Inc.

With this seed capital, 1MDB entered into the JV with Abu Dhabi, purportedly for investments in the property sector in the UAE capital and the development of the TRX land. Both entities were to inject US$3 billion each in the 50:50 JV.

However, although US$3 billion worth of bonds were issued by 1MDB Global Investments, Abu Dhabi did not fulfil its part of the agreement. It did not make any capital injection into the SPV company as per the original plan. Nor was most of the US$3 billion raised used to develop TRX.

Najib is facing four counts of abuse of power for using his position as prime minister, finance minister and chairman of the 1MDB board of advisers to receive gratification worth RM2.28 billion and 21 counts of money laundering involving more than RM4.3 billion.

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