KUALA LUMPUR (June 15): In a rare move, former prime minister Datuk Seri Najib Razak in 2013 instructed the Ministry of Finance (MoF) to issue a letter of support (LOS) for 1Malaysia Development Bhd's (1MDB) US$3 billion (about RM13.26 billion) bond issue without the usually required due diligence for the preparation of such document, which placed the responsibility on the Malaysian government to repay 1MDB's debt, ex-MoF deputy secretary-general Datuk Siti Zauyah Md Desa told the High Court here on Wednesday (June 15, 2022).
Siti Zauyah said the Malaysian government has to bear the repayment of 1MDB's debt under the US$3 billion bond issue because 1MDB failed to repay its debt, which was undertaken to finance the development of the estimated RM40 billion Tun Razak Exchange (TRX) property project along Jalan Tun Razak here.
"Usually due diligence would be conducted for the issuance of an LOS. But in this case, there was no information to conduct due diligence. The LOS was processed based on the then prime minister's instruction.
"As a result, the government currently has to bear the repayment of 1MDB's debt based on the LOS issued by the government signed by [Najib] in 2013," Siti Zauyah testified on Wednesday before High Court Judge Datuk Collin Lawrence Sequerah during the 1MDB-Tanore trial.
Siti Zauyah said she received instructions to prepare the LOS via a letter dated Jan 15, 2013 from Najib.
Goldman Sachs was the lead arranger for 1MDB's US$3 billion bond issue then, according to her.
According to her, the normal procedure for an LOS included due diligence that would take some time as the process required feedback from companies concerned primarily about their operations and their financial statements.
Once the due diligence was completed, the MoF would prepare a Cabinet paper for the Cabinet's approval, according to her.
Following the Cabinet's approval, the MoF's law department would begin drafting an LOS, she said.
Looking back, Siti Zauyah said the MoF's stance was to issue a letter of comfort for 1MDB's US$3 billion bond issue as a moral responsibility instead of an LOS because the MoF did not intend to issue any form of guarantee by the government.
She said Goldman Sachs had requested that the proposed letter of comfort be changed to an LOS, which would hold the Malaysian government liable should 1MDB default on its debt repayment.
"As far as I can recall, the MoF suggested that the LOS would not have any legal binding clause. However, Goldman Sachs did not agree because if there was no government undertaking, it would become unbankable and the loan would not be realised," she said.
On March 14, 2013, Najib signed the LOS for 1MDB's US$3 billion bond issue, according to Siti Zauyah.
According to Siti Zauyah, 1MDB had in 2012 formed a joint venture with Aabar Investments PJS Ltd to develop TRX.
It was reported that the prosecution in the 1MDB-Tanore trial argued that a portion amounting to US$681 million, out of the US$3 billion, was transferred to Najib’s bank accounts between March 21, 2013 and April 10, 2013.
According to news reports, Najib on Sept 20, 2018 pleaded not guilty to 25 charges linked to abuse of power and money laundering over hundreds of millions of dollars received in his personal bank accounts.
It was reported that the 25 charges included four counts of abuse of power involving RM2.28 billion in 1MDB funds.
News reports indicated that prosecutors also charged Najib with 21 counts of money laundering. The list included nine counts of receiving illegal proceeds, five counts of using illegal proceeds and seven counts of transferring the proceeds to other entities.
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