National

Do 1MDB subsidiaries have something to hide?

By Tony Pua, MP for Petaling Jaya Utara

imdb logoEarlier this year, 1Malaysia Development Bhd (1MDB) which is Najib Razak’s flagship investment arm was severely criticised for being late with their financial statements for March 2013 despite it being due in September the same year. The controversial accounts was finally submitted in April 2014 after a 7 month delay and a questionable move to change its auditors from Ernst & Young to Deloitte Malaysia.

However, despite the accounts of the parent company being submitted, what was never highlighted was that the financial statements for the same period of 1MDB’s 2 key 100%-owned subsidiaries has not been submitted to date.

1MDB Energy (Langat) Sdn Bhd, which is a key subsidiary forming part of the twice postponed on-going exercise to publicly list 1MDB’s energy assets has not filed its financial statements since 21st September 2012 for the March 2012 accounts. This is despite the company having at least RM2.8 billion ringgit in loans with collaterals charged to Affin Investment Bank Bhd.

The accounts are crucial because 1MDB had to impair (write-off) RM1.2 billion in the value of its energy assets which were acquired within the same financial year for RM10.9 billion. The immediate massive impairment of its acquired assets is evidence of significant over-payment in acquisition cost. However without the subsidiary 1MDB Energy accounts, it would not be possible to identify the cause and source of these accumulated impairments.

At the same time, 1MDB Real Estate last filed its accounts on 28th December 2012 for the financial year ending March 2012. Like 1MDB Energy, the real estate arm is also heavily in debt. The last known debt amount was RM5.9 billion with collaterals pledged to Ambank and AmInvestment Bank Bhd.

In the parent company 1MDB’s 2013 financial statements, it was disclosed that the group made a net profit of RM778 million on the back of a controversial RM2.7 billion revaluation in property assets. How 1MDB was able to revalue upwards its property value by 77% from RM3.5 billion the previous year has been the focus and criticism of local and international analysts. Without these revaluation gains, 1MDB would have booked a massive loss of RM1.85 billion instead.

However, there is no way for Malaysians to discover the secret behind the “magical” revaluation because the wholly-owned subsidiary holding these assets, 1MDB Real Estate Sdn Bhd has not filed their accounts for the past 18 months!

The sheer lack of governance, transparency and accountability from the wholly-owned government corporation chaired by the Prime Minister himself is both shocking and disgraceful. Such scandalous behaviour certainly serves as a terrible example to all other government agencies. It is hence barely surprising that the Auditor-General Reports consistently highlights the wastages, negligence, abuse of power and even corruption in government departments and companies.

1MDB’s sheer contempt for rules and regulations set to govern accountability in the country reinforces the need for Najib Razak to address this massive elephant in the room which has accumulated debts in excess of RM36 billion on the back of the Government explicit and implicit guarantees.

The size of the debts coupled with the lack of transparency and good governance points to an extremely high risk of financial collapse not only in 1MDB, but the entire Malaysian financial system.

It is time for Najib to walk the talk on “prudence in financial management”. Otherwise, 1MDB’s misadventures will surely cast a deep and dark shadow over any possible “good news” announced by Najib on Budget Day.

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