Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on December 30, 2019 - January 5, 2020

IN 2010, Malaysia entered a new decade full of hope. A new leader from a prominent family had become prime minister just eight months earlier, and the world was recovering nicely from the 2008/09 global financial crisis. There was so much to look forward to, and Datuk Seri Najib Razak galvanised Malaysians with his 1Malaysia tagline and promise of a more inclusive and liberal administration. But whatever he may have achieved in his nine years in power, he will be remembered for three of the country’s biggest financial scandals that happened under his watch. Indeed, he is accused of being actively involved in the events that led to these scandals.

 

1Malaysia Development Bhd (1MDB)

The US Department of Justice (DoJ) described the 1MDB scandal as the worst case of kleptocracy — defined as a society whose leaders enrich themselves by stealing from the country/people. The DoJ estimated the theft at around US$4.5 billion, but the total financial loss to Malaysia is much more than that. The Edge’s estimates, taking into account the debts and interest to be paid, is in the region of RM80 billion.

It started off innocently enough when in September 2009, 1MDB (which started as the Terengganu Investment Authority before being taken over by the Ministry of Finance) raised US$1.0 billion to invest in a joint venture with a company said to be owned by the government of Saudi Arabia. That investment was increased to US$1.8 billion by 2011.

The next year, 1MDB issued two bonds of US$1.75 billion each to buy power plants from Genting Group and Tanjong plc. This was followed by another US$3.0 billion bond, issued just a few weeks before the May 2013 general election.

From 2009 to 2013, while there were murmurings and the occasional news report that things may not be going well, 1MDB operated without too much scrutiny, except for questions in parliament from opposition lawmakers such as Tony Pua, Rafizi Ramli and Wong Chen. Delays in the submission of its annual financial statements made it harder for critics to examine it more closely.

It was only after The Edge and Sarawak Report began to dig deeper into 1MDB’s transactions, and the reactions the reports provoked from 1MDB and hired bloggers, that things started moving. In February 2014, The Edge ran a cover story, titled simply “The IMDB Story”, where we said that after five years, 1MDB had nothing to show except a mountain of debts and there were few signs it can succeed.

1MDB issued a strong rebuttal, claiming that everything was going well.

The Edge followed up with another cover story in April, titled “Bring Back The Money”. The report stated that 1MDB accounts showed it had parked US$2.318 billion in Cayman Islands under a segregated portfolio company (SPC) that few understood. Another US$3 billion had been placed with an unnamed overseas financial institution, supposedly to invest in various types of investments. The article noted that IMDB was “sending money out even as it continues to issue more debts and borrow more to finance its various acquisitions”. It ended by urging 1MDB to bring back the money.

A few more cover stories were published in 2014, including one in November with the headline “Why Malaysians should worry about 1MDB’s debts”.

It was around this time that bloggers started to attack The Edge and its chairman Datuk Tong Kooi Ong, accusing him of being behind the publication of false stories on 1MDB because he was shorting the ringgit.

By then, there were many questions and doubts about 1MDB but no hard evidence.

The first breakthrough came in March 2015, when The Edge and Sarawak Report got hold of documents from former PetroSaudi International Ltd executive Andre Xavier Justo and began to publish a series of articles on the plot to steal billions from 1MDB.

The second breakthrough was in July, when Sarawak Report and The Wall Street Journal wrote that investigators found that US$621 million originating from 1MDB had been transferred to Najib’s bank account at AmBank in 2013.

Despite the solid evidence, Najib and 1MDB continued to deny wrongdoing. He called the news reports an attempt to topple the government and said he would not bow to pressure to resign.

The Edge was suspended and Najib sacked his deputy Tan Sri Muhyddin Yassin and another minister, Datuk Shafie Apdal, and removed Attorney General Tan Sri Abdul Gani Patail and the head of the Malaysian Anti-Corruption Commission, who were leading a probe into 1MDB. Then in early 2016, the new AG cleared Najib of any wrongdoing.

But unbeknown to many, the DoJ had started its own investigations and in July 2016, announced it would be taking civil action to recover billions stolen in the world’s biggest kleptocracy case. Najib was not named but was identified as MO1.

The 1MDB scandal was a key factor that led to the unprecedented defeat of the Barisan Nasional led by Najib in the 2018 general election. He now faces multiple criminal charges, but Low Taek Jho (Jho Low) — his “alter ego” as described by prosecutors — is in hiding from prosecution in Malaysia, Singapore and the US.

The 1MDB affair, which also involved the mighty Goldman Sachs, will continue to make the headlines well into the new decade.

 

FELDA and FGV Holdings Bhd

The Felda Land Development Authority (FELDA) was the brainchild of Malaysia’s second prime minister Tun Abdul Razak and was acknowledged as one of the world’s most successful development initiatives to alleviate poverty in rural areas. With oil palm at the heart of what it does, FELDA entered the last decade financially strong, with a cash balance of over RM8.0 billion. In 2012, it got a RM6.0 billion boost with the successful listing of FGV Holdings Bhd. FGV itself received RM4.5 billion from the listing.

Sadly, under Datuk Seri Najib Razak, within a short period of six years, both FELDA and FGV were in dire financial straits because of a series of questionable purchases between 2013 and 2016.

FGV bought several plantations in Sabah and Sarawak for a total of RM3.0 billion at inflated prices and these plantations did not yield as much as had been anticipated. FGV’s market capitalisation has plunged 70% from its 2012 listing, when it was valued at RM16.6 billion, to RM5.0 billion currently.

FGV was also supposed to buy Indonesian planter Eagle High but backed off after a backlash from minority shareholders like the Employees Provident Fund. Najib then got FELDA to take the stake from his close friend Peter Sondakh for US$505 million. The value of this investment in Eagle High has tanked.

At the close of the decade, once cash-rich FELDA now sits on debt estimated at a whopping RM11.0 billion. The government has announced a RM6.5 billion rescue plan but most analysts believe this is inadequate to put it back on a solid financial footing.

 

Lembaga Tabung Haji (TH)

The company responsible for helping Muslims make their pilgrimage to the Holy Land was not spared from the hands of greedy politicians and their cohorts who manipulated the financials of TH to continue paying hefty dividends — not from profits because there were none, but from the savings of the pilgrims.

TH cooked up profits that were not there in order to pay dividends using the savings of depositors.

And TH made no profit for many years because of dodgy investments in listed companies as well as property and land.

Late last year, the government announced a bailout plan that saw a special vehicle owned by it paying RM19.90 billion for assets that were worth only RM9.63 billion.

The difference of RM10.3 billion — between the consideration of RM19.90 billion and the RM9.63 billion market value of the assets — is to be borne by the government to ensure that the financial health of TH is restored.

The assets transferred consist of a mixture of listed equity holdings, properties and an unlisted plantation asset. The property assets include 1.568 acres (0.65ha) at Tun Razak Exchange (TRX) that was purchased by TH at RM2,760 per sq ft (or a total of RM188.5 million) — significantly higher than the RM75 per sq ft (total of RM5.1 million) that 1Malaysia Development Bhd had paid for it.

Without the bailout, TH would have been effectively insolvent, putting at risk the savings of its nine million depositors. To ensure no future lapses in governance, TH was put under the direct supervision of Bank Negara Malaysia from January 2019.

 

 

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