KUALA LUMPUR: Prime Minister Datuk Seri Najib Razak has dismissed as “baseless” claims that 1Malaysia Development Bhd (1MDB) paid high interest rates to New York-based Goldman Sachs Group Inc to manage its RM5 billion Islamic bonds.

“Goldman Sachs was chosen to manage the RM5 billion Islamic bonds because the company is one of the very few banks in the United States that has the capacity to monitor such a sizeable bond issuance with large amounts,” he said in a written reply to Raub Member of Parliament  Datuk Mohd Ariff Sabri Abdul Aziz.

“Concerns on the 5.75% interest rate charged for the Islamic bonds [issued] back in 2009, with the perception that the interest rates are particularly high, are baseless merely because the Islamic bonds were the first Islamic bonds issued in Malaysia that had a 30-year tenure,” said Najib.

Mohd Ariff asked Najib, who is the Finance Minister and chairman of 1MDB’s advisory board, about the criteria used to appoint Goldman Sachs to manage the RM5 billion Islamic bonds at a 5.75% annual interest rate as compared with a Petroliam Nasional Bhd (Petronas) bond that paid an interest rate of 3.6% during a a period when Goldman Sachs was involved in the “sub-prime loans” scandal in the US.

Mohd Ariff also raised concerns on whether the interest rate was the best rate for 1MDB.

To recap, 1MDB in a lengthy statement issued in October last year, said it took the allegations about its bonds and debt issuances, commissions, debt levels and overpayment of assets “very seriously”, and intended to present its own side of the story to every claim.

It also noted that the issuance of its bonds and debt had been “unfairly compared” to that of Petronas’ in terms of the interest rate both companies first paid to investment firms.

In a separate event yesterday, Deputy Finance Minister Datuk Ahmad Maslan said the government has “nothing to hide” in relation to 1MDB.

He said this is why the prime minister was “brave enough” to engage the Auditor-General (AG) to audit the financials of the state investment firm. On March 4, Najib instructed the AG to independently verify the 1MDB accounts.

It is also why Barisan Nasional (BN) will continue to be the ruling party in the next general election (GE), unshaken by the 1MDB issue, said Ahmad Maslan.

He was responding to questions raised by an Umno grassroots leader at a luncheon talk on the impending goods and services tax and current issues organised by his ministry and the Overseas Umno Club Alumni yesterday.

The Umno leader had asked if BN would still be able to rule the country with the criticism and negativity that it has to contend with now.

“We have nothing to hide on 1MDB,” said Ahmad Maslan.

He also said the initial public offering (IPO) of 1MDB’s energy arm, Edra Global Energy Bhd, was delayed because the opposition has been trying to portray a bad image of the company.

He stressed that the cash flow problems faced by 1MDB could be resolved through the listing of Edra Global Energy. He reiterated that 1MDB is an investment fund that focuses on long-term profit rather than short-term gains.

“As far as I know, the IPO will go on,” he said. When pressed about the timeline for the listing, he said, “Hopefully sometime this year”.

Former prime minister Tun Dr Mahathir Mohamad warned about two weeks ago that if investigations into 1MDB are not done properly, the BN coalition could lose support in the next GE in 2018.

Dr Mahathir also called for a forensic investigation by the police into the allegations against those linked to the controversial 1MDB, saying that a mere audit “is not enough” to uncover the truth behind the debt-ridden state investment vehicle.

His warning came after a show of acceptance and support by Umno division chiefs to Najib after the latter’s explanation on 1MDB.

Meanwhile, the Public Accounts Committee (PAC) said it has yet to receive any preliminary report from the AG on the audit of 1MDB.

“It has been only a few weeks ... we have not received any report,” PAC chairman Datuk Nur Jazlan Mohamed told a press conference yesterday.

On the PAC’s plans to meet with the AG this week to ensure there is no overlap between its hearings on 1MDB and the AG’s audit, Nur Jazlan said this has yet to take place.   

“But I think the [AG] is coming to the PAC to table the Auditor-General’s Report 2014 (Series 1) next Monday and we are hoping to discuss with him on this,” said Nur Jazlan.

Last Tuesday, the PAC had announced that it would meet up with the AG this week to ensure there was no overlap in their investigations and audit of 1MDB.  

The PAC was then hoping to begin its hearings “as soon as possible”, even before the AG’s report is completed due to public interest in 1MDB.

This article first appeared in The Edge Financial Daily, on March 25, 2015.