When winding up Budget 2015 policy debate, Deputy Finance Minister, Datuk Ahmad Maslan informed the Parliament that out of RM36 billion of debt owed by 1Malaysia Development Berhad (1MDB), the Government had only provided a guarantee of RM5.8 billion.
I had interjected during his speech to state that the actual government guarantee for 1MDB debt is much higher because at least one “letter of support” had been issued by the Malaysian Government to assist 1MDB to raise US$3 billion or approximately RM9.6 billion in bonds.
This letter of support is tantamount to a guarantee because the letter states that “The Government of Malaysia hereby confirms and undertakes to provide necessary financial assistance to the Issue in respect of the Debt as follows”:
In the event 1MDB, as shareholder of the Issuer, fails to provide the required funds, Malaysia shall then step in to inject the necessary capital into the Issuer or make payments to ensure the Issuer’s obligations are fully met.
The difference between a “guarantee” and a letter of support where the Government “ensures the Issuer’s obligations are fully met” is purely a matter of semantics.
The above letter of support is published in the Offer Circular distributed by Goldman Sachs International to market the US$3 billion bond offering by 1MDB’s subsidiary, 1MDB Global Investments Limited.
In response, the Deputy Minister rejected my claims outright by claiming that the alleged letter did not exist. The following is the transcript of what he said (Hansard 6/11/14):
Saya ingin menegaskan sekali lagi bahawa kerajaan hanya beri jaminan kepada sukuk oleh 1MDB sebanyak RM5.8 bilion sahaja, sedangkan semua hutang 1MDB ialah RM36.25 bilion, hanya RM5.8 bilion, tidak ada perkara-perkara yang disebut oleh Yang Berhormat tadi…
Tidak ada surat apa semua, yang ini sahaja yang boleh jawab, RM5.8 bilion…
Itu sahaja yang dijamin oleh kerajaan, tidak ada lebih daripada itu. Selain daripada itu, 1MDB tidak menerima jaminan daripada kerajaan bagi pinjaman-pinjaman yang lain… Satu lagi yang disebut mengenai letter of support itu sebenarnya tidak ada.
This claim by the Government of Malaysia is will rock not just the Malaysian, but scandalise the international financial markets.
I have with me a copy of the “Offering Circular” issued by Goldman Sachs International (GSI) to investors for the purposes of raising a US$3 billion (RM9.6 billion) 4.4% bond for 1MDB Global Investments Limited, a wholly-owned subsidiary of 1MDB.
There is a 3-page “letter of support” appended to the Offering Circular on page 86 purportedly signed by the Minister of Finance, on behalf of the Malaysian Government. This letter has also been published in this week’s edition of The Edge.
With the official denial by the Government of Malaysia of the existence of such a letter within the august house of Parliament, this purported letter of support published by GSI must be a forgery and the bond-raising exercise fraudulent.
This is certainly no small matter because investors all around the world would have invested in the 1MDB bonds on the basis that the Government of Malaysia has issued the letter of support which explicitly stated that “this Letter of Support and any non-contractual obligations arising out of or in connection with it are governmed by, and shall be construed in accordance with English law.” This also meant that Malaysia had surrenderred litigation and adjudication rights against itself to the Court of United Kingdom.
The parties who had perpetrated this massive multi-billion dollar fraud against the Malaysian government must be punished. Malaysia’s global reputation is at stake with this fake letter of support deemed genuine by the international investors.
Goldman Sachs had not only charged exhorbitant fees to 1MDB amounting to 9.4% of the US$3 billion bonds sold, the global investment bank distributed fraudulent letters from the Malaysian Government to do so.
We call upon the Malaysian Government to immediately file police and Interpol reports on the fraud; and the Attorney-General must immediately commence investigations to prosecute the issuer, Goldman Sachs International for distributing fake “letters of support” by the Malaysian Government. Dato’ Seri Najib Razak, as both the Finance and Prime Minister, as well as the chairman of the 1MDB Board of Advisors must immediately issue an order for all Government subsidiaries and government-linked companies to cease all dealings with Goldman Sachs and blacklist the investment firm.