Debt settlement doesn’t mean 1MDB escapes PAC inquiry

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DESPITE finally settling the RM2 billion loan with banks via a loan from tycoon T Ananda Krishnan, 1Malaysia Development Bhd (1MDB) may still come under the scrutiny of the Public Accounts Committee (PAC) of Parliament.

nur-jazlan_cover-story_1054PAC chairman Datuk Nur Jazlan Mohamed says the problems faced by 1MDB in settling its debt have raised a lot of questions that will have to be explained.

He told The Edge that if PAC were to act, 1MDB’s external auditor Deloitte Malaysia will likely to be the first to be summoned.

“We have been informed that Bank Negara Malaysia is also concerned about the 1MDB issue and PAC would like to enquire [from them] about their concerns.”

It was reported last month that 1MDB chairman Tan Sri Lodin Wok Kamaruddin, director Tan Sri Ismee Ismail and then CEO Mohd Hazem Abdul Rahman were given a dressing down by the central bank over 1MDB’s inability to repay the RM2 billion, originally due on Dec 31 last year.

The loan was part of a RM5.5 billion sum borrowed by 1MDB’s subsidiary Powertek Investment Holdings Sdn Bhd. Apart from Maybank and RHB, other lenders are Alliance Investment Bank Bhd, Malaysian Building Society Bhd and Hwang DBS Investment Bhd.

1MDB’s total debt stands at almost RM41.9 billion and the weakening ringgit is exacerbating its debt servicing ability for its US denominated debt.

Nur Jazlan declines to elaborate, but it is understood that if 1MDB confirms that a third party (Ananda) had to step in to fulfil its financial obligations, this an indication of 1MDB’s precarious financial position and may lead to a fresh inquiry by PAC, beginning with Deloitte.

PAC member Tony Pua has questioned if 1MDB had misled Deloitte, suggesting that the latter as auditors, should have exercised extra diligence before accepting 1MDB’s promise of full US$1.23 billion redemption of its Cayman Islands funds.

A news portal reported last Friday that Pua has posed a slew of questions for Deloitte following Ananda’s bailout of 1MDB.

The questions include how 1MDB’s financial state could be hit by such a sudden liquidity crunch when it was signed off as “healthy” not even a month ago and whether Deloitte had performed its fiduciary duties in a dutiful and diligent manner.

“These questions are serious because the financial report was signed off on Nov 3, and yet, 1MDB was immediately unable to repay its borrowings due less than 30 days later. This reflects extremely badly on the performance, independence and integrity of Deloitte Malaysia,” Pua reportedly told the portal.

Deloitte had signed off 1MDB’s financial statements for the year ended March 2014, stating that the accounts represented a “true and fair view” of the group’s financial position then. The financial statements were filed in October 2014, when it was disclosed that the US$1.23 billion would be received in full before the end of November 2014.

However, that did not materialise.

Deloitte was appointed by 1MDB in December 2013 following the exit of KPMG, which stated that it could not conclude 1MDB’s accounts.

Ernst & Young, which was the first auditor when the company was set up in 2009, resigned in 2011 without a single audit.

Deloitte, in its report, stated that it was auditing only the 2013 financial year as it was not engaged to look into 1MDB’s books for the 2011 and 2012 financial years.

Nur Jazlan defends PAC against criticisms that it is hesitant in investigating 1MDB’s activities.

On Jan 24, he was reported as saying that PAC will not audit 1MDB as there was already an audit by Deloitte, which is a renowned international firm with more skilled auditors than the National Audit Department. He had explained that the committee was bound by certain rules.

“PAC never took its eyes off 1MDB. We are monitoring developments, and recent developments granted us new grounds to relook at 1MDB with a fresh pair of eyes,” says Nur Jazlan.

“We couldn’t come in [before this] because the first thing is it isn’t mandated, it isn’t on the auditor-general’s list. Technically, we can’t go in.”

He points out that the National Audit Department can only audit companies that have been mandated by the government, and PAC conducts inquiries based on the Auditor-General’s Report.

Khazanah Nasional Bhd’s list of companies and those under the Finance Ministry are not mandated and do not come under the purview of the auditor-general.

This may explain why 1MDB’s subsidiary, SRC International Sdn Bhd, which took a RM4 billion loan from pension fund Kumpulan Wang Amanah Persaraan (Diperbadankan) was not audited.

SRC was brought under the Finance Ministry in 2013.

 However, Nur Jazlan says there is also an element of public interest that PAC can use to start inquiries and the 1MDB saga provides plenty of opportunities for it to do so.

He says other than the possibility of 1MDB defaulting on its loans, Ananda’s involvement, frequent changes in CEOs (three in five years) and contradictory statements by its current CEO have given PAC reasons to keep 1MDB on its radar.

“We are not finished with 1MDB. There are concerns for PAC to look into,” says Nur Jazlan.

“There are a lot of developments, including contradictory statements from the leadership of 1MDB. They are not consistent in what they are telling everyone.”

“For example, the new chief executive Arul Kanda Kandasamy’s statement that they will not repatriate the money from the Caymans’ account, when earlier, he was reported to have said otherwise. He also gave the assurance that as long as there is an audit trail, PAC can still go back and track down anything [if something is] amiss.

“With the audit trail, it doesn’t matter when PAC goes in on it … you can always go back and track it again, and that’s why we can track earlier or later.”

Nur Jazlan also voices reservations over talk that the likes of Petroliam Nasional Bhd and the Employees’ Provident Fund are showing interest or are being courted for 1MDB’s initial public offering of its energy unit.

“I am not comfortable with the idea of state funds, including contributors’ money, being used to invest in 1MDB when there are still unanswered questions,” he says.

 

This article first appeared in The Edge Malaysia Weekly, on February 16 - 22, 2015.