Reports this week shed further light on financial misconduct at strategic state fund 1MDB
Allegations of corruption and financial mismanagement continued to hound to Malaysian Prime Minister Najib Razak this week as the state fund at the centre of the controversy defaulted on a loan and two figures closely linked to the leader came under scrutiny.
Yesterday, it was revealed that 1Malaysia Development Bhd (1MDB), a strategic state fund that is $13 billion in debt, has defaulted on a $1-billion loan payment to Abu Dhabi sovereign wealth fund International Petroleum Investment Company (IPIC). An IPIC filing to the London Stock Exchange on Monday stated that 1MDB and Malaysia’s Ministry of Finance are “in default”.
According to the Wall Street Journal, IPIC guaranteed $3.5 billion of 1MDB bonds in 2012. As 1MDB struggled to find cash, IPIC also approved an emergency billion-dollar loan and agreed “to continue making interest payments on the same bonds it had guaranteed. In return for IPIC taking over the debt, 1MDB agreed to transfer undisclosed assets to the Abu Dhabi fund”.
Christian de Guzman, a Singapore-based analyst for credit ratings agency Moody’s, told Bloomberg that the loan dispute put 1MDB’s debt rationalisation plan in doubt. The embattled fund, which counts Najib as the chair of its advisory board, is selling off assets after amassing huge debts over six years.
In a press statement, Malaysia’s finance ministry said that it “wishes to make clear that it will continue to honour all of its outstanding commitments in the financial markets”.
Also on Monday, Najib’s prominent banker brother, Nazir Razak, said he would step aside while his bank investigated a payment of nearly $7m made to him by the PM.
Nazir, chairman and director of CIMB Holdings, acknowledged that he had received the money from his brother and had distributed it to leading political figures prior to 2013’s general election.
“These events took place three years ago,” Nazir said at a news conference, the New York Times reported. “My brother asked for some help, and I agreed.”
The news comes as Najib remains embroiled in a long-running scandal over $681m deposited into his bank account, money that some say came directly from 1MDB. The prime minister claims the money came from the Saudi royal family as a “donation” and that he subsequently returned $620m. Last week, the Saudi foreign minister said the money was a “genuine donation”. Despite the explanation, 1MDB is still under investigation by authorities in Switzerland, the US, Hong Kong, Singapore and the UAE.
Further revelations on Monday gave more details on the payment to Najib. The Wall Street Journal claimed that Malaysian financier Jho Low, said to be a close friend of Najib’s and his family, had been instrumental in transferring $681m to the personal bank account of the prime minister.
According to the report, in March 2013, Jho sent a Blackberry instant message to an employee of Malaysian financial services company AmBank that “681 American pies” would be arriving from outside the country. Jho emphasised the need for secrecy and that the “PM” did not want his name connected to the transfer. Days later $681m arrived in two transfers to AmBank to be deposited in Najib’s personal account.
Concerns over 1MDB’s financial management were flagged by Malaysia’s central bank as early as 2014, Bloomberg reported yesterday. In an interview, Bank Negara Malaysia’s Governor Zeti Akhtar Aziz said: “Of course this was on our radar screens. We were monitoring in terms of the level of their indebtedness, and whether they had any systemic implications on the banking sector.” Zeti said that the central bank concluded about two years ago that Malaysia’s banking system could have absorbed a default by 1MDB.
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