Datuk Seri Mohd Najib Razak yesterday revealed that Malaysia’s two largest pension funds have invested nearly RM3 billion in 1Malaysia Development Bhd (1MDB).
Najib, who is also the finance minister, said the Retirement Fund Inc (KWAP) had total investment of RM1.52 billion as of March 31 this year while Employees Provident Fund (EPF) had invested RM1.4 billion in 1MDB and its subsidiaries.
“KWAP has investments and holdings in 1MDB and its subsidiaries in Bandar Malaysia Sdn Bhd, 1MDB Energy Ltd, 1MDB Global Investment Ltd and Jimah Energy Ventures Sdn Bhd (JEV),” Najib said in a written parliamentary reply to Pandan MP Rafizi Ramli.
Rafizi had sought an explanation on EPF and KWAP’s investment in 1MDB and its subsidiaries including former subsidiary SRC International Sdn Bhd up to March 2015. Najib said EPF invested RM1.52 billion in 1MDB’s subsidiaries, Panglima Power Sdn Bhd (PPSB) and JEV.
However, the PM said EPF’s investment in PPSB was made in 2003 and JEV in 2005 before both companies were taken over by 1MDB in 2012 and 2014 respectively.
KWAP, which manages pensions for the civil service, is Malaysia’s second-largest pension fund after EPF. The civil service pension fund had come under scrutiny over its RM4 billion government-guaranteed loan to SRC International Sdn Bhd, a former subsidiary of debt-laden 1MDB.
KWAP had also received criticism over reports that it plans to acquire a parcel of land at the Tun Razak Exchange (TRX) financial district at RM2,300 per sq ft. 1MDB Real Estate Sdn Bhd, a wholly owned subsidiary of 1MDB is the developer of TRX.
KWAP had responded by saying it had not made any commitment to purchase a land and a building in TRX.
Meanwhile, Bernama reported EPF CEO Datuk Shahril Ridza Ridzuan as saying the RM200 million 1MDB bond subscribed to by EPF in 2009 is highly secured and there is no risk to EPF.
“It (government guarantee) is the highest form of security,” he said on the sidelines of the International Social Security Conference 2015 in Kuala Lumpur yesterday.
Najib’s SRC Trial: How company landed RM4 bil of KWAP loans
IN August 2010, then 1Malaysia Development Bhd (1MDB) CEO Datuk Shahrol Azral Ibrahim Halmi wrote to former prime minister Datuk Seri Najib Razak seeking a RM3 billion grant to set up SRC International Sdn Bhd.
A wholly-owned subsidiary of 1MDB, SRC International was meant to be a strategic resource vehicle that would hold major stakes in key resources such as coal, alumina, uranium and iron as well as oil and gas (O&G).
On Shahrol’s letter, Najib minuted comments to then Minister in the Prime Minister’s Department (Economic Planning Unit) Tan Sri Nor Mohamed Yakcop to study and comment on the proposal. Nor replied in a memo that while he supported the idea of SRC’s establishment, he felt that ventures regarding O&G — already under the domain of Petronas — should be driven by the private sector.
He also suggested that the RM3 billion be sourced from financial institutions rather than the government. But Putrajaya did accord SRC a RM20 million launching grant.
Following its formation in January 2011, SRC’s first CEO, Nik Faisal Ariff Kamil, wrote to Najib in June seeking a loan of RM3.95 billion from Kumpulan Wang Persaraan (Diperbadankan), or KWAP, to pursue SRC’s strategic investments.
Letter passed to KWAP for consideration of loan
On Nik Faisal’s letter, Najib wrote that he agreed with the proposal and passed on the letter to KWAP’s CEO, Datuk Azian Mohd Noh.
Azian brought the proposal to the board.
In his testimony during the trial, KWAP’s fixed income department’s witness Amirul Imran Ahmat observed that the application was peculiar in that it did not originate from below to the top, but rather from the top down through Najib, as prime minister and finance minister, to the KWAP CEO.
He added that getting the relevant documentation from SRC for the loan application was difficult, and that the application had been very rushed.
The KWAP board initially approved a loan of RM1 billion, as recommended by Amirul, as a RM3.95 billion loan to a single borrower would have been an overconcentration of risk to KWAP as lender. Moreover, SRC was a new entity.
Najib then approached Azian and KWAP’s investment panel chairman Tan Sri Wan Abdul Aziz Wan Abdullah to consider increasing the loan amount to RM2 billion.
“Eventually, the KWAP investment panel, chaired by its chairman, approved the RM2 billion loan in 2011, and an additional RM2 billion loan in early 2012,” the Court of Appeal (COA) judgment said.
“These loans were principally granted on the strength of two government guarantees that the Cabinet approved (chaired by Najib) to guarantee the repayment of the RM4 billion loan by SRC to KWAP.
“Najib’s participation in the two Cabinet meetings that issued the government guarantee forms the basis of the Section 23 Malaysian Anti-Corruption Commission charge of abuse of power,” the legal document said.
Sometime in August 2011, SRC requested for a government guarantee for the first RM2 billion loan. Nik Faisal met with an official from the finance ministry, Afidah Azwa Abdul Aziz, who saw a letter minuted by Najib asking for the preparation of papers for the proposal to be brought to the Cabinet to be expedited.
She was instructed to prepare the papers the very same day, which would be tabled at the Cabinet meeting.
“I was told by my superior to hurry in the preparation of the documents, which was unprecedented as she told in her own words SRC is ‘syarikat PM’ (Najib’s company),” the judgment said in stating what Afidah had testified.
Najib chaired Cabinet meetings to approve government guarantees
The Cabinet meeting chaired by Najib approved the issuing of the first government guarantee on Aug 17, two days after the papers were submitted and soon after KWAP disbursed the first tranche of RM2 billion. A huge portion of the loan, or RM1.8 billion, was transferred on the same day in August 2011.
For the second government guarantee, and the disbursement of the second RM2 billion loan, SRC applied to the government in March 2012 on the same conditions, but strangely, the government guarantee was prepared a month earlier.
At a Cabinet meeting on Feb 8, 2012, Najib tabled the government guarantee to be approved by the Cabinet and following the approval, he executed the government guarantee on behalf of the government.
Other prosecution witnesses said a letter was also written by SRC requesting for the disbursement of the second RM2 billion loan, even before the government guarantee was issued, a request they found unusual.
“On March 28, 2012, the second RM2 billion loan was released in a single drawdown payment. The government guarantee was issued later but the date of its (guarantee) signing was backdated to March 27, 2012, to coincide with the date of the facility agreement between KWAP and SRC.
“These actions as contended by the prosecution constitute a ‘hands-on’ involvement in the two loan approvals totalling RM4 billion by KWAP to SRC,” the appellate judgment said.
The bulk of the RM4 billion was transferred overseas within the same day the loans were disbursed, and by 2015, it became clear that SRC was not able to service the loans.
A short-term loan of an initial RM100 million for SRC was tabled and approved by the Cabinet on Nov 15, 2015.
“As the financing of the RM4 billion was guaranteed by the Malaysian government, if a default notice was issued by KWAP, the whole sum of RM4 billion would have to be recalled and the government would be liable to pay the entire loan and interest,” the COA said.
“Najib also played a pivotal role in the second and third short-term loan given to SRC to the sum of RM550 million from the Consolidated Fund to service the KWAP loan previously borrowed by SRC.” Initially, in late 2015, the Cabinet, helmed by Najib, also approved a short-term loan of RM100 million.
In total, on top of the RM4 billion loan plus interest, the government had forked out an additional RM650 million to prevent a default of the KWAP loans.
Malaysians remain in the dark as to the fate of the RM3.6 billion left from the RM4 billion that was immediately transferred overseas to Swiss banks. Since 2014, Swiss regulators have frozen the funds on suspicions of money laundering.
Get out of 1MDB now, PKR warns KWAP, EPF, Tabung Haji
Three government-linked agencies with holdings in 1Malaysia Development Berhad (1MDB) and its subsidiaries should divest their investments in the companies, says PKR, amid worries that the debt-laden state-investment arm is in danger of a cross default risk which will have an adverse effect on the country’s finances. With 1MDB’s creditors comprising a consortium of six foreign banks said to be planning to demand a repayment of the RM3.6 billion loan before a September due date, Rafizi Ramli (PKR-Pandan) said the company’s failure to pay up would cause a cross default of its other debts totalling RM42 billion. “This will have a huge effect on the country’s financial market.
It is better for KWAP, EPF and Tabung Haji to liquidate their investments now, rather than wait for the crash to happen,” he said at the Parliament lobby today. Pension fund KWAP has RM1.4 billion in investments and holdings in troubled 1MDB and its subsidiaries, while Employees Provident Fund (EPF) has RM1.52 billion investments in 1MDB’s subsidiaries as well.
Pilgrims’ fund Lembaga Tabung Haji (Tabung Haji) has a RM920 million bond in 1MDB’s real estate development Bandar Malaysia and last month, bought 0.63ha from the Tun Razak Exchange (TRX) financial district, which is another 1MDB development. Saying prevention was better than cure, Rafizi added that divesting their investments from 1MDB and its subsidiaries would protect depositors’ interests.
“At the end of the day, in the current situation, depositors are looking at a worst-case scenario, in the event of a default, depositors will be the last people to be able to make a claim on their money,” said the PKR secretary-general. However, Rafizi speculated that Putrajaya will negotiate with KWAP, EPF and Tabung Haji in the event the state investment firm had difficulties paying up its debts.
“Do you think the government will allow 1MDB to crash the capital market? To save this, what will be done by the government is to call these agencies to delay payments or replace the repayments with non-cash assets”. Criticism has been mounting over the Finance Ministry wholly owned investment vehicle, established in 2009, which has chalked up debts of up to RM42 billion, backed by Putrajaya.
Scrutiny has grown more intense following Sarawak Report’s recent exposes, which piled pressure on Prime Minister Datuk Seri Najib Razak and prompted opposition politicians, former and current Umno leaders including long serving former prime minister Tun Dr Mahathir Mohamad and anti-graft bodies to demand a thorough investigation into the fund.
The Auditor-General is currently looking through 1MDB’s books, with a preliminary report expected to be submitted to the Parliament in June, while the Public Accounts Committee (PAC) started its investigation into the company yesterday.