1 MDB, JHO LOW, ANANDA KRISHNAN, PETRO SAUDI AND ABU DHABI COMMERCIAL BANK. WHAT'S THE DEAL?

by the arab and the camel, donplaypuks® intrepid correspondent for oily siphoning affairs

In 2010 Ananda Krishnan (AK) took his flagship Tanjung Plc private for RM8.8 billion. He then sold off, for RM 2.1 billion, Tanjung's gaming arm, which he acquired in a most interesting way back in the '90's (another story). The buyer was a consortium of local prominent businessmen comprising controlling shareholders of some of the leading public listed companies, viz., Lim Kok Thay of Genting, Quek Leng Chan of Hong Leong Group and William Cheng of the Lion Group.

Then, in March 2012, Ananda sold Tanjung's IPP business to 1MDB for RM8.5 billion, realising a massive profit of RM1.6 billion in under two years, while fully retaining his property arm. Besides Tanjung's Powertek IPP in Melaka, Malaysia, the sale included power stations in Bangladesh, Pakistan, Egypt, Sri Lanka nd the Arab Emirates.

1MDB was forced by its auditors to immediately write off possibly RM2 billion of goodwill in its audited profit & loss account, being the difference between the fair book value of the IPP assets and the price paid for them. Tanjung's sale was done through an open international tender where 1MDB had bid the highest. 1MDB is  100% the brainchild of PM Najib. So far, it's not been made clear by PM Najib who is the Chairman of 1MDB's Board of Advisers, the Ministry of Finance (MoF) which owns 100% of 1MDB or Chairman Lodin Wok and the CEO and Board of Directors of 1MDB, why they paid a hefty RM1.6 billion premium for Tanjung's ageing IPPs, particularly when:

1. Powertek was nearing the end of its concession period, and its value was totally dependent on Tenaga approving its lucrative guaranteed cost-pass-through buy-back contract, and whether the government wanted to renew the concession or not. An IPP cannot commence business unless it has a signed Power Purchasing Agreement (PPA) with Tenaga in its pockets. The government has a golden share in Tenaga. Had the government let the concession lapse, they could have had Powertek for a song. And why not? Powertek had long ago recovered its capital cost, and had been milking super profits. It was time to return the golden goose back to the Rakyat.

2. Malaysia then had electricity reserves of about 55% compared to the international 15%-20% norm. Remember, even after 10 years and RM10 billion, Bakun damn, the size of Singapore, is not fully operational, while Sarawak has plans for 12 more damn dams!! We have not been cast back to the dark ages as Mahathir predicted in 1996 we would be, when he tried to justify Bakun, have we? I do not for one second trust the government's projections and statistics on power needs, in dishing out more and more IPP licences (20 of them) and power station contracts. A few days ago Chief Minister of Sarawak Adenan Satem announced approval for another dam, this time only half the size of Singapore, in Baram. This is only 1 of the 12 dams planned!!

So, it's pork-barrel politics again as certainly the usual suspects will benefit from over-priced construction and guaranteed power buy-back contracts, and cheap government subsidised loans and "research grants" and subsidies.

From its inception, 1MDB has had a paid up share capital of RM1 million. To finance its RM12.4 billion IPP cost, which now included Genting Sanyen and Jimah, its overheads, as well as purchasing and developing its land bank, 1 MDB embarked on a suicidal policy - it went on a borrowing binge of RM 46 billion. This is made up of RM42 billion in bonds and bank loans and RM4 billion in derivatives. No sensible and straight management in its right mind would borrow 46,000 times its paid up capital, more so for projects where construction and outlay would not begin some years hence. Or, invest in dodgy projects without doing proper diligence and being taken in by smooth talking 30-year old "investment advisers' with suspect track records.

Then, 1MDB committed another cardinal sin. It utilised loan capital money to service loan interest and overheads. In any sane buisness model, interest has to be serviced from operating profits.

RM6.8 billion of the RM46 billion was purportedly "invested" in a Joint Venture (JV) in the oil and gas sector, with  Petro Saudi, a private company owned by an arab, Tarek Obaid, introduced by Jho Low who knew PM Najib, his wife Rosmah Mansor and son, Riza Aziz well enough to have advised Najib on 1MDB's precursor, the RM10 billion Terengganu Investment Fund (TIA).  

In all the publicity, the impression was given that Petro Saudi was owned by THE royal family of Saudi Arabia, which turned out to be totally false. The JV was aborted within six months. An announcement was made by PM Najib that 1MDB had made a phenomenal 25% return within six months. However, it turned out that Petro Saudi had not returned 1MDB's capital, but had converted it into a loan on which it paid interest. It transpired that PM Najib who announced the "fantastic return" was either idiotically ignorant, misled or was part of the game, when it was revealed that Petro Saudi would repay the loan in 11 annual instalments and the "profit" included an element of repayment of capital. The real profits were more in the 6%-8% range!! Why the loan money was not returned to 1MDB immediately upon the cancellation of the JV, is one of the issues on which citizens are demanding transparency and accountability. Shades of CBT and fraud seem to tinge this entire transaction.

This is also when and where 1MDB got trapped in the clutches of Abu Dhabi Commercial Bank (ADCB) and its subsidiaries, Aabar and IPIC. No doubt ADCB provided guarantees for some of 1MDB's loans, for which it earned the the usual (negotiable) fee for such a service. But it did not stop there.

Curiously, ADCB also worked out an option contract deal with 1MDB where they would be entitled to subscribe to 49% of the shares of the IPP business if it were listed, or to a share of the profits, if the business were sold. Subsequently, in recent weeks it transpired that ADCB was paid compensation of RM3.5 billion for agreeing not to exercise either of its options. But, as announced by 1 MDB, the RM3.5 billion is subject to further upward revision should the IPP business be listed or sold to 3rd parties at a premium. Two bites at the same cherry!!

What kind of an agreement is this? Why and how did 1MDB get suckered into this one-sided option deal? What advise did PM Najib, Chairman of 1MDB's Board of advisesr give to 1MDB's Chairman, CEO and Board of Directots that they went ahead with signing a cock-eyed disadvantageous deal with ADCB? Who advised PM Najib?

Obviously Jho Low must have been one of the advisers. But it has now been revealed that AK also has some buy-back rights over the very IPP's he sold to 1MDB, should it default on its loans. It was rumoured that these rights rose from AK himself being liable if 1MDB defaulted on its loans. It was speculated that this was the reason AK was deeply involved in securing local lenders (compensated with juicy interest rates) to finance 1MDB when it was in danger of defaulting on RM2 billion a month ago. The government has yet to give a clear answer whether the RM2 billion bail out was financed directly by AK, or through one of his companies, or by neutral 3rd parties, and who they are.

The Malaysian public, which has to stand in to pay for every cent 1MDB defaults, all RM46 billion of it, whether they are secured by Malaysian sovereign guarantees or not, does not know the whole and true picture because the information is not forthcoming. 1MDB and chief officers are hiding behind the Official Secrets Act and iffy right to corporate secrecy. Does 1MDB have any such rights when it is 100% owned by the Rakyat, and there are (more than justifiable) allegations of CBT, bribery, corruption, fraud and plain theft? No!

So, here's the $64,000 question:

Is there an unholy alliance between ADCB, Jho Low and AK in all these lop-sided deals with1MDB? 

Why should and would AK be involved in the affairs of 1MDB if he did not have a personal interest, and how did this come about after he had sold his assets to 1MDB? What are the details of the contract with ADCB in its entirety? Are there more shocks to come out of the woodwork?

Are they all hiding behind the veil of off-shore incorporated tax shelter companies? Whose interest are they taking care of and protecting? Are PM Najib, his wife Rosmah Mansor and son Riza prospering in this cosy set up?

I cannot see any bank being interested in acquiring shares in any IPP on its own, anywhere. It goes against their philosophy of being lenders and financiers. So, who put them up to it and why?

Who really is Jho Low fronting for and hiding behind ADCB and its subsidiaries?

Jho Low must have got the idea from a person who knows the Malaysian IPP business like the back of his hand, one who had the connections to the highest public office in the land to flout Bank Negara rules, cow Tenaga and MoF, guarantee over-riding objections to extending PPA and government concession licence. Who was that Malaysian?

The answers will surface in the foreseeable future, possibly within the next few months, if not days and weeks!

 Donplaypuks® with robbing the Rakyat blind, man!