1MDB’s losing Cayman Island investment

Tony Pua revealed that IMDB’s investment in the Cayman Island is suffering losses of RM70 million per annum in his statement made earlier today following a reply by Finance Minister Najib Razak confirming the earlier 1MDB press statement that the fund received a return of only 5.76% in 2013.

Najib’s written reply was in response to Pua’s questions about the status and performance of 1Malaysia Development Berhad’s (1MDB) mysterious investment of US$2.32 billion (RM7.6 billion) in Cayman Islands. The Petaling Jaya Utara MP also requested that the Minister inform the Parliament the name and address of the investment fund, the fund manager and its owner.

“The performance of the fund is woeful relative to the 20% increase in the global stock markets for the year.  The United States stock markets indices; Dow Jones Industrial Average, S&P and NASDAQ rose 26.5%, 30.0% and 38.3% respectively last year.  The Japan Nikkei 225 index shot up by a massive 57%.  Even the KL Composite Index increased by 10.5% for the year,” explained Pua.

In the written reply, Najib had also said that the US$2.32 billion investment in the mysterious fund in Cayman Islands is was a result of exiting the “Murabaha Notes” investment to Petrosaudi International; an investment that had guaranteed a 8.67% annual return to 1MDB until 2021.

“The Finance Minister did not clarify as to why 1MDB sees it financially profitable to exit an investment which provided a guaranteed 8.67% return to switch to a fund “which cannot be named” that gave only 5.67%”, he commented.

Tony Pua went on to add that Najib had failed to highlight the fact that 1MDB took a loan to make the above investments and that the bulk of 1MDB’s borrowings for the above investments were raised in 2009 via an Islamic loan facility “sukuk” where 1MDB had to pay 5.75% interest.

“This means that 1MDB is borrowing money at 5.75% interest to invest in an anonymous Cayman Islands fund which gave a return of 5.76%!,”he exclaimed.

Pua also shed some light that 1MDB had offered the above sukuk at a massive 12% discount implying that it only received RM87.92 in loan funds, for every RM100 it borrowed.

“However, 1MDB has to pay 5.75% interest on the full RM100 which pegs the effective interest rate payable by 1MDB for the sukuk at 6.71%. This means that 1MDB is borrowing money at an effective interest of 6.71% to invest in an anonymous Cayman Islands fund which gave a return of only 5.76%.  Hence 1MDB suffers a loss of 0.95% annually or as much as US$22 million (RM70 million) per annum as a result of the Cayman Islands investment,” he explained.

Highlighting Najib’s refusal to name to owner of the  to name the fund, its manager and owner, he said,

“By merely stating that the fund is “licensed to operate in Cayman Islands” gives scant comfort to the Malaysian tax-payers who see RM7.6 billion of their monies stuck out of the country. What exactly is so secretive about this particular fund manager that the name must remain a top secret and cannot be revealed to the public?”

He concluded by calling on 1MDB’s new auditor, Deloitte Malaysia, to shed some light on the suspiciously parked investment in Cayman Island, infamous for being the destination for money launderers and tax-evaders.

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