KUALA LUMPUR: Prime Minister Datuk Seri Najib Razak has come out to say that the “letter of support” issued by the government to 1MDB Global Investments Ltd to borrow US$3 billion (RM9.6 billion) means that the government will repay the debt if the latter cannot do so.

“1MDB Global Investments should use all of its internal funds and assets.

“It is only if all these steps are taken and the company is still short of funds to repay its loan, then the letter of support from the government becomes effective,”  Najib, who is the finance minister and chairman of 1Malaysia Development Bhd’s (1MDB) advisory board, said in a written reply to Petaling Jaya Utara Member of Parliament (MP) Tony Pua’s parliamentary question.

1MDB Global Investments is a wholly-owned unit of 1MDB, which in turn is wholly owned by the Ministry of Finance (MoF).

The Edge weekly reported that the subsidiary had issued a bond to raise US$3 billion in March 2013, for which Najib’s government had provided a “letter of support”.

In November last year, Deputy Finance Minister Datuk Seri Ahmad Maslan said although a letter of support was given to the sovereign wealth fund for the purpose of raising bonds worth US$3 billion, it was not tantamount to an explicit guarantee from the government.

Ahmad said the letter meant that if 1MDB could not settle the loan, it had to restructure its assets amounting to RM51 billion to meet its obligations.

“I’m confident that 1MDB will be able to pay its debt as the group has high-quality assets backed by strong cash flows and reserves within and outside the country whose value far exceeds the RM$9.6 billion debt,” he said then.

Meanwhile, Najib said Penang-born businessman Low Taek Jho has never worked for 1MDB.

“Low Taek Jho never worked for 1MDB. All the decisions and business dealings of 1MDB were undertaken by its management and the board of directors,” said Najib in another written reply to Wangsa Maju MP Tan Kee Kwong.

Tan asked Najib to state whether there were any business dealings or relationship between 1MDB and the flamboyant entrepreneur, better known as Jho Low.

Low, who is the chief executive officer of Hong Kong investment advisory firm Jynwel Capital, in a recent interview claimed that he was being made a political scapegoat in the highly-publicised 1MDB controversy due to his long-time friendship with Najib’s stepson, Riza Aziz.

Later, at a press conference at the Parliament lobby yesterday, Kuala Terengganu MP Datuk Raja Kamarul Bahrin Shah said authorities like the MoF and Bank Negara Malaysia should have foreseen 1MDB’s problems, as they had the benefit of seeing a “full-dress rehearsal” in similar problems faced by the Terengganu Investment Authority (TIA), the sovereign wealth fund’s predecessor.

Raja Kamarul said 1MDB’s scandals could have been avoided if the regulatory bodies were to take lessons from what happened to TIA.

He said the warning signs had been there, causing the Terengganu state government to opt out at the last minute.

“One of the reasons the state government had decided to pull out was because it realised with RM5 billion made available to TIA, they would be paying RM800 million a year in interest alone for the fund and there was no project identified yet. So it anticipated it would have the same cash flow problem which we see now in 1MDB.

“So if Terengganu, a small state government with not much sophistication, could see that [then] why did the federal government, the MoF and Bank Negara not see it given that 1MDB had the same structure,” he questioned.

He said while TIA and 1MDB were different “movies”, they had the same actors — Najib, Low and Datuk Shahrol Halmi.

Raja Kamarul also said it was a farce that approval was needed to bring back US$1.1 billion into Malaysia. He added that Low had said in emails exposed by website Sarawak Report that Bank Negara’s approval was not needed to move US$600 million to Cayman Islands.

He also said although the state government had pulled out when the loan was being syndicated to TIA, some “actors” were paid over RM200 million in commissions.

“The Terengganu state government got cold feet because no project was identified, but in the process of syndicating the loan, somebody got rich very fast; RM250 million had been paid out for nothing. Now the question is, who is taking over this liability,” he asked.

This article first appeared in The Edge Financial Daily, on March 17, 2015.