I have raised on Monday that for 2 10-year loans amounting to US$4.75 billion (RM15.2 billion) raised in May 2012 and March 2013, 1Malaysia Development Bhd (1MDB) paid an exhorbitant 10% in commissions or RM1.54 billion in “certain commissions, fees and expenses”. The investment banker for the above loans was Goldman Sachs.
The 10% “certain commissions, fees and expenses” paid was exhorbitant because investment banking fees for funds raised rarely exceed 2%, especially for multi-billion dollar loans or bonds.
Tenaga Nasional, for example, raised US$350 million by paying only 2% in fees and expenses. For larger fund-raising exercises such as by Penerbangan Malaysia Bhd, US$1 billion was raised with only 0.5% in fees and expenses. The Mexican and Uruguayan governments on the other hand, issued bonds amounting to US$3.9 billion and US$2.0 billion by deducting only 0.2% and 0.1% for fees and expenses respectively.
Therefore, the logical question I had asked was, who were paid these “certain commissions” as stated in the bond offer documents?
Yesterday, The Edge Financial Daily carried the front page story entitled “Goldman says no payment to third parties”. The daily reported that Goldman Sachs said that the “certain commissions, fees and expenses” referred in the loan offer documents “are standard terms used to describe part of Goldman Sachs compensation for the risks assumed in underwriting the bonds in question”.
The Head of corporate communications of the investment bank in the Asia Pacific, Edward Naylor also said that “other than legal and accounting firms providing professional services, no fees or commissions were paid by 1MDB or Goldman Sachs to external third parties in connection with these transactions, nor have we ever been asked by 1MDB or others to pay such fees or commissions”.
However, the bank refused to explain why the “certain commissions, fees and expenses” were so much higher than the industry norm, and what other clients were charged by Goldman. For example, other fund-raising exercises for Equisar International Inc, Apple Inc and the Mexico Government where Goldman Sachs was involved showed that the fees and expenses amounted to only 1.3%, 0.3% and 0.2% respectively.
Hence by taking the bank’s response at face value, and their refusal to give reasons for the cutthroat 10% fees charged, Malaysians can only come to a single conclusion – the top management of 1MDB must have been comprised of idiotic desperadoes to be fleeced naked by an unscrupulous and unethical Goldman Sachs.
Under normal circumstances, raising RM1.52 billion by an entity wholly-owned by the Malaysian Government should not have cost more than RM152 million. Instead, 1MDB foot a scandalous bill of RM1.54 billion. The top management must be a bunch of incompetent fools.
There is no further recourse for Dato’ Seri Najib Razak who isn’t only the Finance and Prime Minister, but also the chairman of the 1MDB Board of Advisors, but to sack the entire top management of 1MDB, including its Chief Executive Officer, Mohd Hazem Abdul Rahman.
In fact, the entire Board of Director of 1Malaysia Development Bhd must be taken to task for failing its fiduciary duties to ensure that the management performs its tasks in a responsible and accountable for the shareholder, which is the Malaysian Government. The chairman of the Board, Tan Sri Lodin Wok Kamaruddin, who is also the Chief Executive of the Armed Forces Fund (LTAT), must account for why the 1MDB Board has been negligent to check on such incompetence and idiocy.