KUALA LUMPUR (Feb 13): Why did Deloitte Malaysia sign off on 1Malaysia Development Bhd’s (1MDB) accounts when 30 days later, the strategic development fund missed its first deadline to repay an RM2 billion loan, a DAP lawmaker asked today.
Tony Pua, the party's national publicity chief, said it had become necessary to ask if the international auditor had dutifully and diligently performed its fiduciary duty when auditing 1MDB, which is backed by the government.
Deloitte Malaysia had signed off on 1MDB's accounts on November 3, but the strategic investment fund was unable to repay its borrowings due less than a month later. It has since twice missed extended deadlines and the debt has now been settled with a loan from billionaire tycoon T. Ananda Krishnan.
“This reflects badly on the performance, independence and integrity of Deloitte Malaysia,” Pua said in a statement today.
Pua said that according to the audited report for the financial year ending March 2014, 1MDB had in its balance sheet a total of RM3.85 billion in “cash and bank balances”, but asked where the money had gone.
He added that the auditors had also taken into account 1MDB’s proposed redemption of its US$1.1 billion (RM3.9 billion) investment in Cayman Islands which would improve the company’s liquidity in the short term.
"Therefore, given the above ‘cash and bank balances’ and the Caymans' redemption, 1MDB should not be suffering from any cash flow shortage to repay a relatively small RM2 billion loan," he said.
As such, Pua urged Deloitte to come clean and protect its image as an independent and compliant auditor with ethical standards in discharging its professional responsibility.
He said it was widely known that 1MDB was unable to repay the RM2 billion borrowings due last November, adding that the loan had since been extended twice until January 31.
The next deadline, before Ananda Krishnan stepped in, was February 18, and Pua noted media reports that the lending banks would declare the loan in default if 1MDB failed to make payment.
If the banks triggered a default, Pua said, the remaining balance of the fund's debt, which was in excess of RM40 billion, would also immediately be in default.
"Such an eventuality will be devastating not just for 1MDB, but for the creditworthiness of the Malaysian government which guaranteed explicitly and implicitly at least RM16 billion of these debts.
"The impact on the local financial system will be equally severe," said Pua, who is also Petaling Jaya Utara MP.
Pua said Ananda Krishnan's intervention to settle the fund’s RM2 billion debt was only a “temporary relief” for 1MDB's cash flow problems.
"The move also marks the disgraceful circumstances the wholly-owned Ministry of Finance subsidiary has found itself in, where it has to stoop so low as to rely on the goodwill and generosity of a local billionaire for its survival.
"More interestingly however, is how 1MDB found itself in such financial distress when their auditors, Deloitte Malaysia gave the company a clean bill of health barely three months ago on November 3, 2014," the DAP lawmaker said.