Written by the Taxi Driver
The disastrous performance of the fund has been complicated by the circumstances of its 2009 inception. It was proposed to Najib by Jho Low Taek, then a 27-year-old investment advisor with a lot of Middle Eastern friends and a reputation as a playboy who made the papers of New York tabloids, partying with the likes of Nicole Ritchie and Paris Hilton as well as the prime minister’s wife, Rosmah Mansor.
Jho Low Taek, a hard-partying young friend of the Najib family, may have used Malaysian government guarantees to back the making of The Wolf of Wall Street, a hit movie starring Leonardo di Caprio, and to fund his attempt to take over three of London’s most prestigious hotels.Najib is the chairman of the 1MBD advisory board and the motivating force, apparently on the advice of Jho Low, as he is known, a putative whiz kid who is alleged to have steered the fund first into a disastrous alliance on oil exploration on the advice of a Saudi prince he went to school with in London.When Mahathir began his campaign against Najib more than a year and a half ago, it was given little chance. The former Prime Minister had been out of office for more than a decade and was regarded as a loud but irrelevant force. But political analysts in Kuala Lumpur say his campaign has been gaining traction over the 1MDB issue
“Realistically Najib’s situation is untenable,” a member of the Mahathir faction said. “Certainly he will fight back but whether he resigns or not point is he is he cannot function as PM.”The vehicle for his surrogates’ attack on Najib is 1MDB, the five-year-old state investment fund which as of March had amassed debts of RM49.1 billion (US$14.04 billion) against assets of RM51.4 billion, registering losses of Malaysian ringgit 63.5 billion at the end of the quarter, mainly on huge finance costs.
Low Taek Jho was involved in the press attacks by his paid bloggers against Tun Dr Mahathir Mohamad, Datuk Seri Nazir Razak and The Edge publisher Datuk Tong Kooi Ong
1MDB, as the fund is known, had missed a December. 31 payment and is exploring ways to settle with lenders, primarily RHB Bank and Maybank, two of the country’s biggest banks, by the end of January. It is the second time 1MDB has missed a payment. It previously asked Bank Negara Malaysia, the country’s central bank, for a three-month extension on its loan obligations.Recall that 1MDB already extended its RM5.5 billion bridging loan, originally part of a RM6.2 billion loan from Maybank Investment Bank in 2012, multiple times, even delaying its power assets listing due to negotiations on its debt obligations.
In 2008, a boisterous young man by the name of Jho Low Taek, a Penang-born Wharton grad with a taste for Cristal champagne and Broadway blondes, approached Malaysia’s Terengganu state government with a proposal to use the state’s authority to sell RM10 billion (US$2.87 billion) in bonds to start a state-backed investment fund. That proposal has led to what Tony Pua, a Democratic Action Party lawmaker, has called “the mother of the mother of the mother of all scandals in the history of Malaysia.”
Paris Hilton topless on a yacht off St. Tropez and partying at La Voile Rouge on Pampelonne beach in St. Tropez on her never ending France vacation financed by her new Malaysian tycoon boyfriendTaek Jho Low. Note the liberal use of bottles of champagne as super soaker. Because it is just what spoiled little rich bitches born into money do, Paris Hilton has been on a whirlwind vacation for around a month or so. By the way, I don't know who's bright idea it was to let Paris Hilton put her whore mouth on the biggest bottle of champagne ever, the same bottle that will be passed around like it was Paris Hilton's vagina. Everyone at this beach party now have oral herpes.
What recession? Tycoons spend £1.8 million on champagne in St Tropez
Paris Hilton watched as the rival tycoons Zhen Low and Winston Fisher competed to see who could order more £600 bottles of Cristal in a St Tropez nightclub.
Paris Hilton watched as the rival tycoons Zhen Low and Winston Fisher competed to see who could order more £600 bottles of Cristal in a St Tropez nightclub.
As Joan Collins and her friends descend on St Tropez this week for a party on board Lady Joy, the yacht owned by the American socialite Denise Rich, they have been made to look positively austere.
Mandrake hears that two rival billionaires spent a staggering €2 million (£1.77 million) on champagne at Les Caves du Roy nightclub. Zhen Low, the younger brother of the Malaysian tycoon Jho Low, became involved in a competition with Winston Fisher, a New York property developer, to see who could order more £600 bottles of Cristal for their chums.
Guests included Paris Hilton, the socialite, who helped the cherubic Jho celebrate his 28th birthday with a four-day party in Las Vegas
The disastrous performance of the fund has been complicated by the circumstances of its 2009 inception. It was proposed to Najib by Jho Low Taek, then a 27-year-old investment advisor with a lot of Middle Eastern friends and a reputation as a playboy who made the papers of New York tabloids, partying with the likes of Nicole Ritchie and Paris Hilton as well as the prime minister’s wife, Rosmah Mansor.
Jho Low Taek, a hard-partying young friend of the Najib family, may have used Malaysian government guarantees to back the making of The Wolf of Wall Street, a hit movie starring Leonardo di Caprio, and to fund his attempt to take over three of London’s most prestigious hotels.Najib is the chairman of the 1MBD advisory board and the motivating force, apparently on the advice of Jho Low, as he is known, a putative whiz kid who is alleged to have steered the fund first into a disastrous alliance on oil exploration on the advice of a Saudi prince he went to school with in London.When Mahathir began his campaign against Najib more than a year and a half ago, it was given little chance. The former Prime Minister had been out of office for more than a decade and was regarded as a loud but irrelevant force. But political analysts in Kuala Lumpur say his campaign has been gaining traction over the 1MDB issue
“Realistically Najib’s situation is untenable,” a member of the Mahathir faction said. “Certainly he will fight back but whether he resigns or not point is he is he cannot function as PM.”The vehicle for his surrogates’ attack on Najib is 1MDB, the five-year-old state investment fund which as of March had amassed debts of RM49.1 billion (US$14.04 billion) against assets of RM51.4 billion, registering losses of Malaysian ringgit 63.5 billion at the end of the quarter, mainly on huge finance costs.
Mahathir and his allies have been dissatisfied with Najib’s performance for more than two years over a wide range of other issues as well, however. The 1MDB issue, described as “the mother of the mother of the mother of all scandals”Khairuddin Abu Hassan, a Penang-based United Malays National Organization Deputy District Chief, filed the request for a “detailed and comprehensive” investigation including the interrogation of 1MDB’s board of directors and representatives of any companies that might be implicated.
a fierce debate erupted over how to protect against cyber attacks by Low Taek Jho pro-bloggers.
Low Taek Jho was involved in the press attacks by his paid bloggers against Tun Dr Mahathir Mohamad, Datuk Seri Nazir Razak and The Edge publisher Datuk Tong Kooi Ong
1MDB, as the fund is known, had missed a December. 31 payment and is exploring ways to settle with lenders, primarily RHB Bank and Maybank, two of the country’s biggest banks, by the end of January. It is the second time 1MDB has missed a payment. It previously asked Bank Negara Malaysia, the country’s central bank, for a three-month extension on its loan obligations.Recall that 1MDB already extended its RM5.5 billion bridging loan, originally part of a RM6.2 billion loan from Maybank Investment Bank in 2012, multiple times, even delaying its power assets listing due to negotiations on its debt obligations.
Now this begs yet another question: why borrow on such short horizons if the capital is intended for long-term investments? Would it not make more sense to match the repayment timeline with when the returns on investment are expected to flow in?
And unlocking value to the assets 1MDB had acquired, of course, would not be too difficult. Its properties were acquired cheap from the government, after all, and from there it is simply a matter of bringing valuations up to market benchmarks.
As for its power assets, KiniBiz had previously examined why 1MDB grossly overpaid for them, even borrowing money to do so despite having much cash lying around. Now is this prudent investing as 1MDB Chairman Lodin so generously claimed? Hardly. Numbers don’t lie and in 1MDB’s case, red ink remains red however you call it otherwise.
Perhaps 1MDB is revolutionising investment before our very eyes. Maybe there is a deeper wisdom to its strange madness of borrowing at high cost and making low-return investments.
Or maybe, just maybe, 1MDB simply made poor investment choices and consequently lost some RM5 billion over the past few financial years bar paper gains from revaluing its properties.
In which case what 1MDB seems to be saying right now fits right into the first part of the Kübler-Ross’ five stages of grief: denial. And we have not even talked about its losses of up to RM4 billion from its bond mispricing yet…
In 2008, a boisterous young man by the name of Jho Low Taek, a Penang-born Wharton grad with a taste for Cristal champagne and Broadway blondes, approached Malaysia’s Terengganu state government with a proposal to use the state’s authority to sell RM10 billion (US$2.87 billion) in bonds to start a state-backed investment fund. That proposal has led to what Tony Pua, a Democratic Action Party lawmaker, has called “the mother of the mother of the mother of all scandals in the history of Malaysia.”
That might be one mother too many, but Pua is not alone, with critics of what is now called 1Malaysia Development Berhad, or 1MDB, coming from outside the opposition as well. It is certain that the proposed Terengganu Investment Authority has metastasized into a mess that can properly be called huge and has put Prime Minister Najib Tun Razak’s tattered reputation on the line yet again. Much of the story has been detailed in two Malaysian publications, The Edge and the online news portal Malaysiakini's business unit, Kinibiz.
Najib, the head of the 1MDB advisory board, has faced a barrage of questions from opposition lawmakers in Parliament for weeks and an attack on his own flank from former Prime Minister Mahathir Mohamad and his allies, including former Finance Minister Daim Zainuddin, over what can only be regarded as an astonishing level of mismanagement.
The question was why Malaysia needed another government-backed investment fund in the first place, especially one dreamed up by a young friend of the PM's family. It has Khazanah Nasional Bhd., the 23-year-old investment holding arm that manages Malaysia’s assets and makes strategic investments, and the Employee Provident Fund, which also invests employee pension funds. Both are creatures of the Ministry of Finance.
The Terengganu Sultan, Mizan Zainal Abidin, had misgivings over the plan by Jho Low, as he calls himself, so the 27-year-old Low went to the parents of a friend he had made among Malaysia’s privileged elite in the UK. While anti-colonial rhetoric still spews at home, Malaysia’s wealthy have always known where to send their scions. Jho Low was at the exclusive 450-year-old Harrow, with his friend Riza Aziz at nearby 150-year-old Haileybury, which trained English youth for service in India. Riza’s mother is Rosmah Mansor, Najib’s second wife.
Thus the proposed Terengganu Investment Authority metamorphosed into 1Malaysia Development Bhd., also under the Ministry of Finance. Today 1MDB has accumulated debt of RM36.25 billion (US$10.4 billion) that is only covered by repeated accounting upgrading of the value of property handed to it at a knock-down price by the government to get it started – a 196-hectare former air force base near the center of Kuala Lumpur.
In recent months, the government, in an attempt to build up the fund so it can be listed, has strong-armed at least three no-bid contracts for 1MDB to build coal-fired and solar power plants. One of those power plants, in Port Dickson near Malacca, was awarded to 1MDB despite a lower bid from a joint venture of YTL International Bhd and SIPP, partly owned by the Sultan of Johor, who is said to have been enraged by the loss and is demanding privately that SIPP be given its own no-bid contract for another plant.
Although its dealings are opaque, sources in Kuala Lumpur believe it was Jho Low, previously regarded as a savvy investor despite his tender years, who drove 1MDB into disaster. Although the chairman of the Board of Directors is Lodin Wok Kamaruddin, who holds the high-ranking honorific of tan sri, he is regarded as a figurehead and many of 1MDB’s major decisions have Low’s fingerprints on them
Low, who has accompanied Rosmah on forays to New York to meet celebrities including Lionel Ritchie and Paris Hilton, landing in the pages of the New York Post, involved 1MDB in backing his failed 2011 bid to buy three prestigious London hotels – Claridge’s, the Connaught and The Berkeley, according to documents filed in the Chancery Division of the UK’s Royal Courts of Justice.
A Los Angeles law firm accused the government of Malaysia, without mentioning 1MDB, of racketeering in funding the phenomenally successful movie The Wolf of Wall Street, an Oscar-nominated picture starring Leonardo DeCaprio and co-produced by Riza Aziz, Rosmah’s son. How that might have been done is unclear. The lawyers for a Los Angeles plaintiff who sued over the rights to the movie refused to elaborate, citing lawyer-client privilege. But in the case of the Claridge’s campaign, 1MDB issued guarantee letters saying the fund would stand behind the purchase. Presumably that meant Malaysia’s sovereign fund would cover any losses accrued if the sale failed.
The fund loaned RM7.2 billion to finance oil exploration for another chum out of that rarefied London ex-colonial society – Tarek Essam Ahmad Obaid, a London playboy said to be a grandson of the Saudi Sheikh Obaid, one of the kingdom’s most senior grandees. Tarek met Jho Low a few months before the deal for the loan was consummated, according to Clare Rewcastle Brown, a former BBC reporter who has followed the 1MDB affair closely. Tarek is the founder and chief executive of PetroSaudi International, Ltd. Despite its pretentious website there is little information on PetroSaudi, which was only incorporated three years before the entry of 1MDB. The money, to be loaned at 8.75 percent, has disappeared.
What 1MDB has not done is make enough money to cover its huge debt, although determining anything is difficult because no up-to-date accounts have been filed.
“I was the finance head for oil companies before I entered politics,” Rafizi Ramli, strategic director and secretary-general of the opposition Parti Keadilan Rakyat, told Asia Sentinel. “Nobody I knew had ever come across PetroSaudi before. We tried to check what it was. It was incorporated in the British Virgin Islands. While it is normal for financial investors to enter into ventures, how could a government commit such a huge sum of money with a greenhorn company with no known track record, incorporated in a haven for dodgy money, in an industry where capital risk is so huge?”
When the bid to explore for oil collapsed, the money appears to have been invested in speculative yen forex deals, insiders told Rafizi. Forex trading is not for amateurs. By early 2012, it began to appear that the money had altogether disappeared, according to Tony Pua. 1MDB was having trouble filing its financial reports, a signal that something was wrong. When 1MDB said the funds had been moved into a fund in the Cayman Islands, its managers refused to say who was managing the money.
Today, Pua said, the entire operation appears to be built on debt, although with audited financial reports delayed it is impossible to say for sure. Its managers are seeking to cover the losses through additional borrowings and money raisings, including a US$4.75 billion one engineered by Goldman Sachs, the international investment bank, that cost 1MDB 10 percent of the offering, a phenomenal amount for “commissions, fees and expenses” according to the prospectus. By comparison, Tenaga Nasional, the state-owned energy utility, paid a 2 percent fee on a US$300 million money raising. SMBC Aviation Capital, which leases jets to Malaysian Airlines, paid 0.5 percent on a US$1 billion capital raising. The fees paid to Goldman worked out at US$1.54 billion, Pua said.
The fund today is betting its future on becoming the country’s biggest power producer and a global energy player. It acquired a string of overpriced independent power producers from the Genting gambling interests and Ananda Khrishnan, the country’s richest businessman and an UMNO crony, for RM11 billion to generate cash flow, at what were astounding valuations. Indeed, within six months, the fund’s auditors wrote off RM1.2 billion of the valuation because they were so overpriced.
“Because they were desperate to borrow to cover the acquisitions, they had to pay higher interest rates,” Pua said. “And because they were desperate, they paid Goldman crazy fees to arrange the loans.”
On top of the enormous interest burden from the debt, it turns out that the cash flow from the IPPs is so small that it was barely enough to cover the interest, let alone pay back the RM15 billion principal.
With the hole from the initial failed loan to PetroSaudi, and the vast debt from the IPP purchases, 1MDB is now trying to list to raise US$10 billion from the market. But in order to write a credible prospectus for the listing, it requires strong financials. 1MDB’s financials do not come anywhere near credible enough to assure potential investors of future cash flow.
The government has stepped in to extend the contracts for the IPPs, which were supposed to end after their contract periods ended. That is still not enough. The government then tendered a contract to build the coal-fired plant in Port Dickson. Critics charge the contract was unnecessary, that Tenaga Nasional, the state-owned utility, had the experience and capital to build the plant itself. The tender turned out to be a fiasco, with the YTL-SIPP consortium coming in with a lower bid, only to be disqualified on what many critics have said was a technicality.
Since then, the government has awarded three contracts to 1MDB, the other two without the potential embarrassment of a tender process. But critics point out that 1MDB has never built anything and is mainly relying on the expertise of Tenaga Nasional. The bid for a 50 megawatt solar power plant project in Kedah in the north of the country is to be the largest solar plant in Malaysia despite the fact there is no guaranteed offtake, that prices for solar, even though they have fallen sharply, still exceed that of conventional plants, and that Malaysians are going to end up paying more for their electricity.
All of these moves are an attempt to rescue 1MDB and give it the potential to demonstrate income to investors. So on the advice of a 27-year-old neophyte and friend of the prime minister’s family, the country has created a state-backed investment fund, got itself involved in a series of businesses it knew nothing about, put the country’s sovereign backing behind a private hotel bid and a Hollywood movie, run up a vast amount of debt, and now is seeking to bail itself out via preferential contracts to build electrical plants with expertise so far it doesn’t have. The critics expect that this is going to cost Malaysia’s taxpayers and ratepayers a considerable amount of money.
In 2009, Jho Low Taek, the then 27-year-old investment wunderkind who persuaded Prime Minister Najib Tun Razak to establish the now-struggling 1Malaysia Development Bhd, also persuaded the fund to loan US$1 billion to help finance an oil exploration firm called PetroSaudi International Ltd, which was to put up US$1.5 billion with the stated aim of searching for oil in the Caspian Sea area.
PetroSaudi has since taken on the elements of tar baby, sticking to anything it touches, including former UK Prime Minister Tony Blair, who made a fortune by peddling his unsavory global connections to the firm.
Prime Minister Najib Tun Razak, in a series of press releases and public statements, has implied that the investment linked up Saudi Arabia and Malaysia, given the presence of Prince Turki bin Abdullah Abdulziz, the son of the King of Saudi Arabia, in the deal, although the oil company’s website doesn’t list him among its principals. But at that point, despite having been founded in 2000, PetroSaudi was little more than a gleam in the eye of its managing partner, Tarek Essam Ahmad Obaid, a London playboy said to be a grandson of the Saudi Sheikh Obaid, one of the kingdom’s most senior grandees and a chum of Jho Low.
“The Malaysian press took massive license by implying that the joint venture was an official partnership between states,” a source familiar with the deal told Asia Sentinel. “But in fact it was merely a private deal. They took even more massive license with claims about Middle Eastern investment in Malaysia -- we are actually talking about Malaysian investment in a private Middle Eastern company. Far from helping poor Malaysians develop 1MDB ended up lavishing money on one of the fattest rich Arabs going.”
In 2010, 1MDB sold its 40 percent interest back to PetroSaudi, but it didn’t get paid back. Instead, PetroSaudi created a 11-year bond at 8.67 percent interest to pay back the money.
Today 1MDB, struggling with unfunded liabilities, has had to seek an extension from three to six months of its unpaid debts from Bank Negara, the country’s central bank, under fears that Malaysia’s major banks might have to make provisions that had the potential damage the country’s financial system. They are hoping for the return of at least some of the US$500 million from PetroSaudi. In addition, 1MDB in March 2011 loaned PetroSaudi another US$500 million.
One person who apparently is not worried is Tony Blair, the former UK Prime Minister, who in 2010 signed a US$65,000 a month contract with PetroSaudi to act as a rainmaker, seeking to secure deals across the world for the company’s exploration and production activities. The details of Blair’s 21-page contract with PetroSaudi were published by the Sunday Times of London on Nov. 9, although few connected PetroSaudi to the 1MDB investment fund,, although Clare Rewcastle Brown, a former BBC reporter who edits the Sarawak Report, made the connection and reported on it last month.
According to the story, the contract, between Tony Blair Associates and PetroSaudi was negotiated in 2010, and included a clause providing Blair with 2 percent of any deal concluded. Apparently, according to the Sunday Times, the arrangement was ended after a few months. But, the story said, it provides what it called a detailed look at the former premier’s “cash-for-contacts” business, built on his years as prime minister and subsequent career as an aspiring peacemaker in the Middle East,
The Sunday Times said the contract involved the former premier arranging introductions to his contacts in China, including senior political figures. How much rainmaking got done is undisclosed. The firm was told it could not divulge Blair’s role to anyone without permission. However, the PetroSaudi contract made public by The Times indicated that Blair’s firm would help find potential sources of new investment and added that Blair would provide “introductions to the senior political leadership, industrial policymakers, corporate entities and other persons in China identified and deemed by us and you to be relevant to PetroSaudi’s international strategy.”
Blair has come under widespread criticism over his ethics in using his contacts in office to enrich himself in his new career. He left office almost a pariah for his role in supporting George W Bush in the 2003 invasion of Iraq when British intelligence services knew the Saddam Hussain government had no weapons of mass destruction. He befriended a series of thuggish international leaders including Bashar al-Assad, Syria’s besieged dictator, and maintained friendly relations with the since-deposed and murdered Muammar Ghaddafi of Libya.
In the meantime, 1MDB continues to struggle. What was the US$1 billion in loans and bonds to PetroSaudi is said to be parked in the Cayman Islands, according to opposition figures Tony Pua of the Democratic Action Party and Rafizi Ramzi of Parti Keadilan Rakyat But whether 1MDB can meet even the extended loan payment period depends on whether the money can be repatriated from the Caymans. The fund has officially postponed the sale of up to RM8.4 billion in sukuk bonds to next year.
While the postponement was said to be because the company is asking for a two-month extension to the completion of a US$3.2 billion powerplant it is joint venturing with Mitsui & Co, the opposition’s Rafizi and Pua say it’s because 1MDB can’t get its prospectus in shape to sell the bonds – that its cash flow isn’t sufficient to cover the debt, and that the repayment of the money from PetroSaudi is overdue.
Despite its apparent failure to find oil in the Caspian, from its shaky beginnings, PetroSaudi has gone on to win a variety of projects including a well off Venezuela as well as projects in Ghana, Indonesia, Saudi Arabia and Tunisia although the website gives scant information on the activities in the latter countries. It does list two drillships purchased from Singapore interests.
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