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Wednesday, 17 June 2015

Cabinet approved RM5b sukuk in Terengganu fund

A Cabinet paper was prepared and subsequently approved for the issuance of a government-backed RM5 billion sukuk by the Terengganu Investment Authority (TIA), the firm that was later federalised into 1Malaysia Development Berhad (1MDB).
In a statement explaining the mattern today, 1MDB denied Tun Dr Mahathir Mohamad's claim in a recent blog post that there was “no evidence” of such a Cabinet paper, telling the former prime minister that the matter was handled in the full knowledge of the federal government.
“Contrary to Tun Mahathir’s claim, a Cabinet paper on this matter was prepared and approved by Cabinet, in line with standard practice and as required for all government guarantees,” it said.
1MDB also denied Dr Mahathir's claim that there had been an attempt to “hijack” TIA's money.
It said in 2009, prior to 1MDB's formation, various discussions were held between Putrajaya and the Terengganu government over how each party would provide its share of funding for the state-owned fund.
The federal government's contribution was subsequently agreed to be in the form of its guarantee of the RM5 billion sukuk.
Later, however, 1MDB said the state decided to withdraw from the TIA, which then led into the entity being federalised in July 2009.
1MDB said the guarantee had not been “off budget” as claimed by Dr Mahathir s it was a “clear and acknowledged” liability of the federal government, which is owns 100 per cent of the investment firm.
The firm also pointed out that the sukuk had been arranged by AmBank, which it said negates Dr Mahathir's claim that US-based investment bank Goldman Sachs was entrusted with raising the loan or that it would get a commission of RM500 million to do so.
“AmBank fully underwrote the sukuk issuance (i.e. it took the risk to provide RM5 billion to 1MDB) and, therefore, earned any commission it received for doing so,” 1MDB pointed out.
In his June 12 blog post, Dr Mahathir also claimed that 1MDB’s government-guaranteed loan cost almost 7 per cent in interest instead of the usual 3 per cent or less, a term he described as “terrible”.
1MDB, however, categorically denied this, claiming the rate was much lower at 6.15 per cent.
Citing details from Bank Negara's website, the firm said that on May 29, 2009 (the date the RM5 billion bond was issued), yields for government bonds were at 2.82 per cent (three years maturity), 3.56 per cent (five years maturity) and 4.27 per cent (10 years maturity).
It noted that the RM5 billion sukuk has a 30-year maturity, which means that it would mature at a date three times later than the 10-year government bond, the longest maturity period for a bond at that time.
The 1MDB sukuk, it continued, had been issued at a discounted price which, when added to the deal, results in a yield of between 6.15 per cent and not 7 per cent as claimed by Dr Mahathir.
“Based on the logic outlined above, 1MDB achieved 30-year financing for its sukuk at a yield of 6.15 per cent.
“By contrast, 10-year government bonds had a yield 4.27 per cent. Given the difference in the maturity period, this was a good outcome by any yardstick in the fixed income markets,” 1MDB said.
Dr Mahathir has been at the forefront of attacks against 1MDB, a brainchild of Prime Minister Datuk Seri Najib Razak whose early resignation the former is now campaigning for.
The firm is currently under probe for alleged impropriety by at least three authorities, including the Auditor-General's Department, Parliament's Public Accounts Committee and Bank Negara Malaysia
(Malay Mail Online / 16 June 2015)
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