By Petaling Jaya (The Star/Asia News Network) From The Straits Times

The board of 1Malaysia Development Bhd (1MDB) was unaware of the diversion of US$700 million (S$945 million) in funds meant for a joint venture company it set up together with PetroSaudi International Ltd (PSI).

The members were also unhappy with the manner and speed in which the agreements were signed to set up the joint venture company called 1MDB PetroSaudi Ltd on Sept 28, 2009.

According to investigators, the board members felt the agreement to set up the JV company was signed hastily and this prompted two senior members of the 1MDB board to resign.

The board of 1MDB was informed on Sept 18, 2009 of an agreement with PSI and that valuations were to be carried out on its oil and gas assets in Turkmenistan and Argentina.

However, on Sept 28, the agreement was signed with PetroSaudi Holdings (Cayman) Ltd, a wholly owned subsidiary of PSI.

According to investigators’ initial findings, there was no document related to the existence of assets and valuation of PetroSaudi Holdings (Cayman).

Under the agreement, 1MDB paid PetroSaudi Holdings (Cayman) US$1 billion for a 40 per cent stake in the joint venture.

Investigators said the board was not informed about a loan amounting to US$700 million that was extended to the JV company by PetroSaudi Holdings (Cayman) on Sept 25, three days before the JV was formalised.

The loan was extended with the condition that it was to be repaid in full by Sept 30.

According to investigators, the board had approved the US$1 billion deal and that the cash be transferred into the account of the joint venture – 1MDB PetroSaudi.

“However on Sept 30, only US$300 million of the total US$1 billion was actually transferred to the joint venture account while US$700 million was deposited into another account,” said investigators.

The board members were unhappy that the agreement was signed without much consideration and that US$700 million meant for the JV company was transferred to another company without their approval.

“The board subsequently directed that the US$700 million be returned to the JV company, but no action was taken,” said an investigator.

This led to the resignations of 1MDB chairman Datuk Mohd Bakke Salleh and Tan Sri Azlan Mohd Zainol who were said to be unhappy with the defiance of the 1MDB management.

Bakke resigned on Oct 19, 2009 while Azlan left the board on Jan 11.

On March 31, 2010, the 40 per cent stake was converted into Islamic debt papers valued at US$1.2 billion.

In 2010, 1MDB had extended additional borrowings to 1MDB PetroSaudi amounting to US$500 million and another US$300 million.

In 2012, the Islamic debt papers were redeemed and 1MDB ended up with a 49 per cent stake in PetroSaudi Oil Services Ltd (PSOSL). The value of the 49 per cent stake was US$2.2 billion.

1MDB eventually sold the 49 per cent stake to Bridge Partners International Investment Ltd in August the same year, and received promissory notes amounting to US$2.32 billion from Bridge Partners.

In the same month, 1MDB through its subsidiary Brazen Sky Ltd invested the promissory notes into Bridge Global Absolute Return Fund SPC and Bridge Partners Investment Management Company (Cayman) Ltd.

1MDB redeemed part of the money amounting to US$1.22 billion.

The remaining is still held in various portfolios.

IMAGE: A motorist riding past the construction site of the 1MDB Tun Razak Exchange in Kuala Lumpur. PHOTO: AFP

For more on this story go to: http://www.straitstimes.com/asia/se-asia/1mdb-board-unhappy-over-hasty-deal-and-diversion-of-funds-to-joint-venture-report

Related story:

1MDB criticises The Star for its reports

From The Star Online

PETALING JAYA: 1Malaysia Development Berhad (1MDB) has criticised The Star for reporting on certain transactions made by the controversial state investment arm.

The report in The Star touched on the assets of 1MDB, quoting investigators who feel that almost RM13bil of the company’s assets might not be easily liquidated. 1MDB also disputed the investigators claims that no valuation was done in the joint venture investment with PetroSaudi Holdings (Cayman).

The full statement by 1MDB accusing The Star of “poor reporting” reads as follows:

1MDB notes with concern a number of articles relating to 1MDB published in The Star newspaper today. In particular, The Star has made a number of assertions based on the opinions of an unnamed “investigator”, with reference to certain transactions undertaken by 1MDB.

1MDB is concerned that a regulated and licensed newspaper such as The Star is presenting such unsubstantiated opinions as fact in its reporting. Further, it is a well known fact that a number of lawful authorities are conducting investigations on 1MDB and no final determination has yet to be made.

For example, The Star states, “Even assets that are being held for sale cannot be easily liquidated”. This is clearly wrong as the notes to the30.03.2014 financial statements of 1MDB, as audited without qualification by Deloitte, describes how USD1.22 billion (approx. RM 4.6 billion) of these assets had in fact been liquidated and cash proceeds utilised.

The Star further states that “there was no document related to the existence of assets and valuation of PetroSaudi Holdings (Cayman)”. This is blatantly incorrect. There was a valuation report prepared when the investment was made and 1MDB has in fact submitted the same report to the lawful authorities for their review.

Such sloppy reporting by The Star, a regulated and licensed newspaper, is disappointing. In fact, in relation to the interim report on 1MDB presented on 9 July to the Public Accounts committee (PAC) by the National Audit Department, the PAC Chairman has clearly stated, “there is nothing suspicious in the interim report”. It is, therefore, clear there is no truth to allegations that “RM 42 billion” or “RM 16 billion” is missing, an allegation that has been repeated by various parties.

A number of lawful authorities are currently conducting investigations into 1MDB. 1MDB is fully cooperating with these investigations. We trust that appropriate measures will be taken by the lawful authorities to ensure the integrity of such investigations.

For more on this story go to: http://www.thestar.com.my/News/Nation/2015/07/11/1MDB-Poor-The-Star-Poor-reporting/

See iNews Cayman related story with links:

Published June 16, 2015 “1MDB rebuts Mahathir’s blog posting entitled ‘More Investments by 1MDB’” at: http://www.ieyenews.com/wordpress/1mdb-rebuts-mahathirs-blog-posting-entitled-more-investments-by-1mdb/