Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on March 15, 2019

KUALA LUMPUR: The Securities Commission Malaysia (SC) has established a special committee at the board level to address “potential gaps or lapses” in the regulator’s overall processes, which sources said was prompted by its handling of several 1Malaysia Development Bhd’s (1MDB) bond issuances under its oversight.

The set-up of the committee was confirmed yesterday by SC chairman Datuk Syed Zaid Albar, although he did not acknowledge that it was due to the 1MDB fiasco alone.

“We have, from time to time, reviewed all our processes whether in the area of bond issuance or otherwise,” said Syed Zaid after presenting the SC’s 2018 annual report yesterday.

“The review includes the entire SC. It (the formation of the special board committee) is part of our process as well … in order to address any potential gaps or lapses within the SC,” he said.

Syed Zaid was responding to questions on whether the board was set up due to lapses in SC’s handling of the RM5 billion sukuk issuance by 1MDB’s former entity Terengganu Investment Authority (TIA) in 2009, as well as the RM2.4 billion Bandar Malaysia sukuk in 2014.

“[The review] is still ongoing,” added Syed Zaid, who took over the chairmanship in November last year after the change of government.

“And once we have completed it, we will take whatever appropriate action deemed necessary at that particular point in time,” he added.

The SC, which regulates Malaysia’s capital markets, has been criticised for not fully pursuing the discrepancies in 1MDB, which fall under its regulatory purview, namely the issuances of bonds locally.

The SC’s first concrete action was conducted in January this year, when the regulator fined Deloitte PLT RM2.2 million relating to the RM2.4 billion Bandar Malaysia sukuk.

In particular, Deloitte — who audited 1MDB’s unit Bandar Malaysia Sdn Bhd (BMSB) for the financial year 2015 (FY15) ended March 31, 2015 and FY16 — failed to report irregularities in the audit, which might affect BMSB’s ability to repay the sukuk holders.

Meanwhile, no party has been fined by the SC for the RM5 billion TIA bonds issued in 2009.

The Edge Malaysia weekly in its Jan 28-Feb 3, 2019 issue reported that at least RM4.2 billion out of RM5 billion bonds were sold to two separate entities in Thailand (RM3.8 billion) and Singapore (RM500 million) at a 13% discount.

The two entities later sold the bonds to local investors at or higher than the face value, netting an estimated RM559 million in the process.

The bonds were arranged and sold on behalf of the entities involved by AmInvestment Bank Malaysia, The Edge Malaysia weekly reported.

The Thai entity — Thai-listed Country Group Securities Pcl — later also instructed AmInvest to transfer US$113 million of its windfall profit to a Singapore entity linked to Low Taek Jho (or Jho Low), who was then the official adviser for TIA.

When asked whether the SC has pinpointed anyone else profiting from the bond-flipping, Syed Zaid replied, “We are still in the process of investigating and once we have completed our investigation we will make the necessary recommendations.”

On a related matter, Syed Zaid said a show-cause letter has been issued to Goldman Sachs, without elaborating.

It is believed that the show-cause letter is in relation to its involvement in the arrangement of 1MDB bonds in 2012 and 2013.

“Our enquiry is ongoing … We will not comment further until the final outcome is reached,” said Syed Zaid. He was responding to questions from the media on whether the SC has any plan to review Goldman Sachs’ operating licences in Malaysia.

Goldman Sachs obtained the SC’s licences to set up fund management and corporate finance advisory operations back in December 2009.

In December last year, the bank was charged alongside several others by the Malaysian government for abetting misleading statements in its circulars to misappropriate US$2.7 billion from three bonds issued by subsidiaries of 1MDB.

The three bonds totalling US$6.5 billion were arranged by Goldman Sachs International (UK) in 2012 and 2013. It earned US$600 million in fees for the exercises.

The SC’s delay in taking action on 1MDB compares with Bank Negara Malaysia (BNM), which in October 2015 recommended to the Attorney-General to initiate criminal prosecution against 1MDB for breaches under the Exchange Control Act 1953.

BNM also fined AMMB Holdings Bhd RM53.7 million in November 2015 for “non-compliance with certain regulations”, which is believed to be linked to 1MDB.

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