Kuala Lumpur: The Malaysian government is liable for US$3 billion in debt taken on by a 1Malaysia Development Berhad (1MDB) subsidiary in 2013 as then-finance minister Datuk Seri Najib Razak signed a letter of support for its fundraising, the High Court heard today.
Such letters of support were de facto government guarantees.
Datuk Siti Zauyah Mohd Desa, a former Finance Ministry deputy secretary-general (policy), said it was unclear how the 1MDB subsidiary had spent the US$3 billion, as the state investment firm had failed to provide any updates to her division in the Finance Ministry.
Siti Zauyah said this while testifying as the 26th prosecution witness in Najib’s trial over the misappropriation of more than RM2 billion of 1MDB funds.
SIti Zauyah confirmed that 1MDB — which had taken on the US$3 billion debt in 2013 through a bond issued by its subsidiary — had failed to make repayments according to the terms of the debt.
“This caused the government at this time to be forced to bear the repayment of this debt of 1MDB, based on the letter of support that had been issued by the government which was signed by YAB finance minister, namely Datuk Seri Mohd Najib Abdul Razak in 2013,” she said.
She was referring to a March 14, 2013 letter of support signed by Najib and given to the subsidiary company 1MDB Global Investment Limited (1MDB GIL) which would be issuing the US$3 billion bond.
This letter of support was crucial for the 1MDB subsidiary to be able to issue the US$3 billion bond.
The US$3 billion fundraising was purportedly for investments via a planned joint venture between 1MDB and Abu Dhabi firm Aabar Investments PJS, but it is now known that 1MDB had instead dealt with a fake company that had similar names to Aabar.
Siti Zauyah said 1MDB had failed to provide any of the documents requested by the Finance Ministry.
She said 1MDB was required to present its investment report to the Finance Ministry after the letter of support was issued, but said the company had not done so.
“My division at that time was responsible to get the report from 1MDB, but I confirm, throughout my duty in the BPKA division, I did not receive any feedback from the 1MDB management about the use of the US$3 billion funds which they obtained through the letter of support from the government,” she said, referring to the loan management, financial markets and actuarial division she was working at in the Finance Ministry then.
She said her division had asked 1MDB’s representative then Zahid Taib to provide feedback and documents or reports to the ministry, but stressed that no such reports were given to her division.
“Among documents which my division consistently asked for is the 1MDB audited financial reports that they have to provide a copy to the Finance Ministry, but 1MDB failed to produce that document to my division,” she said.
“About the issuance of this US$3 billion bond, I confirm that BPKA does not know and was not given a report by 1MDB about where the money was spent on and used, whether it was used for the original purpose according to their application or not used for that purpose” she said.
The prosecution had on the first day of Najib’s trial said it would show that 1MDB GIL had on March 19, 2013 only received US$2.721 billion of the US$3 billion funds it raised with the balance paid to arranger Goldman Sachs as fees, and that over US$1 billion of the US$2.721 billion was paid to the two funds Devonshire Funds Limited and Enterprise Emerging Markets Fund (EEMF) — now known to be linked to Low Taek Jho — on March 20 and March 21, 2013.
The prosecution had also said it would show that a total of US$890 million — including a US$430 million sum passing through Granton Property Holding — made its way within days from Devonshire and EEMF to Tanore Finance Corporation, and that it would also showed that Tanore had by early April 2013 transferred US$681 or over RM2 billion to Najib’s account.
Granton and Tanore are now known to be under Low’s associate Eric Tan’s control.
