1MDB abusing proceeds from US$3 billion bond, says DAP lawmaker

Petaling Jaya Utara MP Tony Pua says 1MDB is facing difficulties in balancing its cash flow. – The Malaysian Insider file pic, November 17, 2014.

In another twist to the 1Malaysia Development Bhd (1MDB) saga, a federal lawmaker has claimed that the state sovereign fund is diverting part of the proceeds of the US$3 billion (RM9.6 billion) loan raised by its subsidiary to fund operating expenses and pay off its burgeoning debts.

This, said Tony Pua (DAP - Petaling Jaya Utara) clearly showed that 1MDB was facing difficulties in balancing its cash flow.

The sovereign fund's wholly owned subsidiary, 1MDB Global Investments Limited, had issued a bond to raise US$3 billion in March last year.

According to the offering circular issued by Goldman Sachs, 1MDB Global Investments will "either on-lend all of the nett proceedings of this offering" to Abu Dhabi Malaysia Investment Company (ADMIC) or "use the nett proceeds of the offering to fund its investments in ADMIC".

However, in its latest financial statements for the year ended March 2014, 1MDB had said that the remaining nett proceeds had been utilised by the company for working capital and debt repayment purposes.

Of the US$3 billion bond, US$283 million were paid to global investment bank Goldman Sachs International for certain commissions, fees and expenses while US$1.56 billion is invested with a licensed financial institution.

This, said Pua, means that the balance of US$1.16 billion was diverted to parent company 1MDB to repay the latter's debts and fund its operating expenses.

"The transfer of US$1.16 billion, or 42.7%, of the funds to be used by the parent company, 1MDB, to help pay its debt and cover the shortfall in operating expenses is a clear breach of the offering circular," he said at a press conference at the Parliament lobby today.

"The question is hence, have the investors of the 1MDB bond been duly informed of the change of use of the proceeds?" Pua said, calling it a "desperate act" by 1MDB which was proof of its cash-flow difficulties.

Pua said such abuse of funds would harm 1MDB's credibility and may even affect the listing of its energy subsidiary, which is scheduled to take place by the first quarter of next year.

"In the listing prospectus, it would be clearly stated the 'use of proceeds' from funds raised.  The question then is, can the 'use of proceeds' listed in the prospectus by 1MDB be trusted? 

"Will the expected RM18 billion raised by 1MDB Energy from its initial public offering be similarly diverted to bailout 1MDB’s other debts or fund 1MDB’s other operations, instead of being dedicated to build the 1MDB energy business?" he asked.

1MDB is Malaysia's second sovereign wealth fund after Khazanah Nasional Bhd, and has drawn much criticism for its heavy debts and opaque operations.

One of its staunchest critics is former prime minister Tun Dr Mahathir Mohamad who had called on Putrajaya to explain how the fund had benefitted Malaysians, especially since it incurred a RM38 billion debt in just five years of its operations.

Dr Mahathir had said there was no need for 1MDB as it only served to add on to the country's debt.

"1MDB is said to be a sovereign wealth fund, but it is not. It is money that we have borrowed. When we borrow, we have to pay back. This is not wealth.

"In my opinion, even if there is no 1MDB it would be fine,” Dr Mahathir was quoted as saying in news reports when he was asked whether the fund should be shut down.

- TMI