DATUK Shahrol Halmi was the CEO of 1Malaysia Development Bhd (1MDB) from March 23, 2009, and was the principal person running the company until he stepped down in March 2013. He is currently with the Prime Minister’s Department and remains on the 1MDB board.
It was during his time as CEO that 1MDB entered into a number of investments and transactions that are now the subject of accusations of impropriety. The Edge believes that Shahrol should be accorded the right to address some of these issues and allegations in the light of the evidence presented by Sarawak Report and also emails and documents sighted by The Edge, which we believe to be genuine.
We, therefore, present here some facts about what took place and hope Shahrol will answer all the questions that arise from them:
1. You were introduced to Tarek Obaid and Patrick Mahony of PetroSaudi by Jho Low in an email dated Sept 18, 2009. In the email, Jho Low said the signing ceremony must be done on Sept 28, 2009.
This meant you were given only 10 calendar days to complete this multibillion-ringgit deal.
For your information, your future JV partner, PetroSaudi Holdings (Cayman) Ltd, had also on the same day (Sept 18, 2009) formed a new subsidiary company, 1MDB PetroSaudi Ltd. This was the company into which 1MDB subsequently injected US$1.0 billion for a 40% interest. In other words, even before you were introduced to PetroSaudi by Jho Low, they already knew 1MDB was going to be their joint-venture partner.
So, somebody else was making decisions for 1MDB, not you the CEO or even the board of directors?
2. On Sept 21, 2009, Mahony wrote an email to Jho Low, Tarek and you (following your email to them on Sept 20) and copied it to Casey Tang (the then executive director of 1MDB) and Robert Ho (head of corporate communications at 1MDB). Basically, Mahony informed you that they were not yet ready to provide the list of assets to be injected into the JV. Your interest appears to be what news to spin to the media about the JV.
Were you not interested in what 1MDB was investing in? And didn’t it alarm you that seven days before the targeted signing date of Sept 28, your partner could not provide you with information on the assets 1MDB would be investing in?
3. On Sept 22, 2009, you sent to Mahony and copied to Tang, Tarek and Kelvin Tan (director of investments at 1MDB) a draft of the joint-venture agreement (JVA). Why did you use and send to them the draft that was given to you by Tiffany Heah on behalf of Jho Low even though 1MDB had already hired Brian Chia of Wong & Partners as the company’s legal counsel? Why did you accept the draft from Heah, who at the time was legal counsel at UBG Bhd, an entity that had nothing to do with 1MDB except that Jho Low was a major shareholder?
Were you aware that Jho Low, Heah and Mahony had already discussed and agreed among themselves on the main terms of the JVA before Heah sent you the draft, which you then forwarded to Mahony? Jho Low was obviously acting for both 1MDB and PetroSaudi.
4. On Sept 28, 2009, you executed the JVA on behalf of 1MDB. 1MDB was offered two of the five board seats and no management representation. Was this reasonable, given that 1MDB was the only party putting in cash — a whopping US$1.0 billion? Also, why was it not stated in the press release issued by 1MDB that PetroSaudi was not putting any cash into the JV?
5. Item 5 of the JVA on Page 7 says 1MDB shall engage independent valuation experts to value the assets of PetroSaudi to be injected into the JV. This report must be completed by Sept 30, 2009. 1MDB can terminate the JVA in the event the valuation is low.
Did 1MDB appoint an independent valuer?
Edward Morse of New York, who was engaged by PetroSaudi, submitted his valuation report on the assets of PetroSaudi on Sept 29, 2009, a day after the JVA was signed. He provided a valuation of some US$3.625 billion. Of this, US$3.518 billion was for the Turkmenistan Serdar project. This asset, in fact, did not belong to PetroSaudi but to Buried Hill Exploration. PetroSaudi was only in discussion on farming rights, which subsequently proved unsuccessful.
In other words, PetroSaudi only had assets worth US$100 million for 60% ownership of the JV while 1MDB paid US$1.0 billion cash (RM3.48 billion at the then exchange rate) for a 40% interest.
Did you or the staff at 1MDB verify the valuation of US$1.5 billion via an independent report or did you choose to accept the valuation done by Morse, who was engaged by PetroSaudi? Were you not concerned that Morse could do a valuation of supposedly massive assets within a week of engagement by PetroSaudi?
6. Recital B of the JVA says PetroSaudi Holdings has provided the JV company 1MDB PetroSaudi Ltd with advances amounting to US$700 million. On Page 4 of the JVA, the loan is dated Sept 25, 2009.
The JV company was incorporated on Sept 18, 2009. The purported loan was made by PetroSaudi Holdings on Sept 25, 2009. The JVA was executed on Sept 28, 2009. The lender demanded repayment on Sept 29, 2009. 1MDB remitted US$1.0 billion cash on Sept 30, 2009, of which US$700 million was supposed to be for repayment of the “loan” from PetroSaudi Holdings. Was this not all rather “convenient”?
Did you verify the US$700 million loan? Did you see the loan document? Was the loan in the form of cash? Was there
US$700 million cash in the JV company? Or was it just a “paper or imaginary loan”? Did your legal adviser Brian Chia of Wong & Partners offer his view on the “loan”?
We have reason to believe that there was no way PetroSaudi Holdings had US$700 million cash to lend the JV company on Sept 25, 2009. PetroSaudi Holdings was a shell company. Its only asset was what Morse had valued at US$100 million — the Argentinian Patagonia oil and gas blocks.
We saw various emails in early December 2009 between Mahony and — from the 1MDB side — Kelvin Tan, Nik Faisal Ariff Kamil, Onn Ming Thein and Radhi Mohamad on transferring cash from the JV company (cash injected by 1MDB) to fund the operations and expenses of PetroSaudi Holdings, with an annual budget of US$97 million. Clearly, your JV partner PetroSaudi Holdings did not even have money to fund its own operations and expenses and needed funding from 1MDB. Why did 1MDB have to fund the operations of its JV partner? And were you aware that Nik Faisal was in regular contact with Jho Low and whenever Mahony could not resolve issues with 1MDB, he would refer to Jho Low, who would then say that Nik Faisal would resolve them?
7. On Sept 29, 2009, Jonathan Yong of White & Case (the London-based lawyer for PetroSaudi) sent an email on the remittance of the US$1.0 billion from 1MDB to your lawyer Brian Chia of Wong & Partners that was copied to a number of people, including yourself and Casey Tang. This email was on how the US$1.0 billion was to be paid out.
It was stated that US$300 million was to be paid to Chase Manhattan Bank, New York, for final credit to account number 7619400 at JP Morgan (Suisse) SA. This was a new account in the name of 1MDB PetroSaudi Ltd (the JV company). The joint signatories were Tarek Obaid or Patrick Mahony jointly with yourself or Keng Chee Tang.
The remaining US$700 million was to be paid to JPMorgan Chase Bank, New York, for final credit to account number 11116073 at RBS Coutts Bank Ltd, Zurich, for an account in the name of PetroSaudi International Ltd.
In a series of subsequent email exchanges, Brian Chia of Wong & Partners questioned why the recipient of the US$700 million was PetroSaudi International Ltd when the loan of Sept 25 was from PetroSaudi Holdings (Cayman) Ltd.
Mahony explained that they were effectively the same company. Chia, acting for 1MDB, then asked White & Case to confirm this but was told by Mahony that it was not necessary and that he was confirming on behalf of PetroSaudi Holdings (this email was blind copied to Jho Low and Tiffany Heah).
Between Oct 1 and 2, 2009, upon receiving the US$700 million, Eliane Humair (investigations) and Laurent Schmid (regulatory risk) of RBS Coutts Bank in Zurich asked Prakash Gopi of global market operations at Deutsche Bank Malaysia for the full name of the final beneficial owner of account 11116073.
Deutsche Bank Malaysia was the remittance bank for 1MDB.
On Oct 2, 2009, Jacqueline Ho of Deutsche Bank Malaysia wrote to Casey Tang and you, asking for the name and address of the beneficial owner of account number 11116073. Tang forwarded Ho’s email to Jho Low. Why was it necessary for Tang to forward the email to Jho Low?
On the same day, you replied to Deutsche Bank: “Jac, please use this address — GOOD STAR LIMITED. P.O. Box 1239, Offshore Incorporation Centre, Victoria, Mahe, Republic of Seychelles.”
Your reply to Ho was forwarded to Jho Low, who then forwarded it to Mahony with the message, “Shld be cleared soon. Pls update tarek”.
Shahrol, who is this Seychelles-incorporated Good Star? Why did you validate the remittance of US$700 million to Good Star? Did Jho Low instruct you to tell Deutsche Bank that Good Star is the beneficial owner of the RBS Coutts bank account?
Based on documents we have seen, Good Star is beneficially owned by Jho Low and is not part of the PetroSaudi Group and here is why:
a. The chief investment officer of Good Star is Seet Li Lin, who is currently a vice-president of Jynwel Capital (Jho Low’s company in Hong Kong). He was with Jho Low in Wynton Group and Unity Capital (Singapore) and was Jho Low’s assistant throughout the 1MDB-PetroSaudi deal. He was also Jho Low’s classmate at Wharton, besides being his sidekick and party mate. He was also previously with the Monetary Authority of Singapore.
b. Of the US$700 million sent to Good Star, fronted by PetroSaudi International Ltd (Seychelles), US$610 million was subsequently parked with a Panama-domiciled investment manager, whose director is also Seet Li Lin, in exchange for non-voting shares.
Note that PetroSaudi International Ltd (Seychelles) was not part of the PetroSaudi Group but only a front for Good Star. The two companies shared the same Seychelles address.
c. On Sept 30, 2009, Good Star executed an agreement to pay Tarek US$85 million as “broker fees” for raising funds from the Middle East into Malaysia and the payment was to be made within five days.
8. On Oct 7, 2009, many days after you executed the JVA and paid the US$1.0 billion, you were still asking for PetroSaudi’s company profile from Mahony for an upcoming 1MDB board meeting. You said to him, “It would greatly help us out in the BOD meeting this Saturday.”
For your information, your email to Mahony was forwarded to Jho Low, who told Mahony, “Don’t need to send it. Don’t worry, will handle them.”
How did you make a US$1.0 billion decision without even having a company profile of your partner? Was there no prior 1MDB board meeting to approve the US$1.0 billion investment? Or was the JVA signed and executed by you and presented to the board to endorse post its signing?
We note that the then chairman of 1MDB, Tan Sri Mohd Bakke Salleh, resigned from the board of directors on Oct 19, 2009 — three weeks after you signed the JVA and just after the board meeting. Bakke was replaced by Tan Sri Lodin Wok Kamaruddin, who remains the chairman until today. The other director who was there at the time of the JV and is still a member of the board is Tan Sri Ismee Ismail, the current CEO of Lembaga Tabung Haji.
Like you, both of them have a lot of explaining to do.
9. In September 2010, a further US$160 million was paid to the account of Good Star with RBS Coutts (to the same account number of 11116073). This forms part of the US$500 million (over and above the US$1.0 billion that was converted from equity to a loan) from 1MDB for its subscription for more Murabaha notes issued by PetroSaudi.
Another US$260 million (RM800 million) from the US$500 million from 1MDB was transferred to Javace Sdn Bhd through the bank accounts of Tarek and PetroSaudi Holdings. Javace used this RM800 million plus a RM700 million loan from AmInvestment Bank Bhd to privatise UBG Bhd in 2010, a company in which Jho Low had a substantial stake along with the family of then Sarawak Chief Minister Tan Sri Abdul Taib Mahmud.
Interestingly, the privatisation of UBG was done by PetroSaudi International (Seychelles) — the front for Good Star, which received US$700 million from 1MDB. The general offer for UBG was therefore in effect one by Good Star using 1MDB’s money.
10. It is clear that Good Star received 1MDB’s money not just from the first US$1.0 billion investment in the JV with PetroSaudi but was also creaming part of the cash remitted by 1MDB each time it made payments to subscribe for the Murabaha notes in 2010.
Why did 1MDB keep remitting cash to PetroSaudi even after the JV was cancelled with a large sum diverted to Good Star, a company that was controlled by Jho Low and Seet, who, by the way, on Sept 30, 2009 — after you approved the US$1.0 billion remittance — wrote this on Facebook: “I feel the earth moved under my feet”?
Can your fellow Malaysians have some answers from you, please?
PS: The Edge is happy that the Cabinet has asked the Auditor-General and the Public Accounts Committee (PAC) to investigate 1MDB’s accounts and operations. We are prepared to assist the AG and PAC in carrying out their investigation, including providing information we have obtained from our own probe into the dealings of 1MDB since its inception in 2009.
This article first appeared in The Edge Malaysia Weekly, on March 9 - 15, 2015.