as i sees it

For my son, when he grows up, this site will be my legacy for him. The decisions his mother and I made for him, to understand them, to learn from them and to lead a life without prejudice and to succeed in it on his own merit.

Friday, July 24, 2015

1 Massive Debt Baggage

The Scandal that ate Malaysia


 
The near collapse of a state-owned company has rocked the government, rattled investors, and stirred public outrage
 
July 22, 2015
 
In the spring of 2013, Song Dal Sun, head of securities investment at Seoul-based Hanwha Life Insurance, sat down to a presentation by a Goldman Sachs banker. The young Goldman salesman, who had flown in from Hong Kong, made a pitch for bonds to be issued by 1Malaysia Development Bhd., a state-owned company closely tied to Malaysian Prime Minister Najib Razak.
 
It was enticing. The 10-year, dollar-denominated bonds offered an interest rate of 4.4 percent, about 100 basis points higher than other A-minus-rated bonds were yielding at the time, he recalls. But Song, a veteran of 25 years in finance, sensed something was amiss. With such an attractive yield, 1MDB could easily sell the notes directly to institutional investors through a global offering. Instead, Goldman Sachs was privately selling 1MDB notes worth $3 billion backed by the Malaysian government. “Does it mean ‘explicit guarantee’?” he recalls asking the Goldman salesman, whom he declined to name. “I didn’t get a straight answer,” Song says. “I decided not to buy them.”
 
The bond sale that Song passed up is part of a scandal that has all but sunk 1MDB, rattled investors, and set back Malaysia’s quest to become a developed nation. Najib, who also serves as Malaysia’s finance minister, sits on 1MDB’s advisory board as chairman. The scandal’s aftershocks have rocked his office, his government, and the political party he leads, United Malays National Organisation, or UMNO. A state investment company trumpeted as a cornerstone of Najib’s economic policy after he became prime minister in April 2009, 1MDB is now mired in debts of at least $11 billion. Former Prime Minister Mahathir Mohamad, a one-time political mentor who’s turned on Najib, says “vast amounts of money” have “disappeared” from 1MDB funds. 1MDB has denied the claim and said all of its debts are accounted for. The prime minister’s office declined to comment for this article.
 
From the moment in 2009 when Najib took over a sovereign wealth fund set up by the Malaysian state of oil-rich Terengganu and turned it into a development fund owned by the federal government, 1MDB has been controversial. Since the beginning of this year—with coverage driven by the Sarawak Report, a blog, and The Edge, a local business weekly—the scandal has moved closer and closer to the heart of government, sparking calls for Najib’s ouster and recalling Malaysia’s long struggle with corruption and economic disappointment.
 
Mahathir, who was prime minister from 1981 to 2003, now accuses Najib of “hijacking” the Terengganu Investment Authority, or the TIA, from the state government. Not so, 1MDB said in a statement: The state government willingly “decided to withdraw from the TIA” after the federal government guaranteed the TIA’s bonds.
 
That didn’t end the argument. Beginning in March, as public pressure grew, the country’s auditor general, the parliament’s public accounts committee, the central bank, and the police have all homed in on 1MDB. The force of the scandal helped topple the ringgit, the worst-performing currency in Asia as of July 16, down 8.1 percent against the dollar since the start of the year. Foreign reserves plunged 20 percent in June from a year earlier.
 
On July 3, the Wall Street Journal, citing documents from government probes, reported that investigators believe almost $700 million in cash moved through state agencies, banks, and companies linked to 1MDB before eventually finding its way into Najib’s personal accounts. The money reportedly included two transactions—one worth $620 million; another, $61 million—made in March 2013, two months before a general election returned Najib to power as part of the Barisan Nasional, or National Front, coalition.
 
In a country with no public campaign financing and few strictures on political donations, the alleged cash flows caused alarm. Before the 2013 election, on March 12, 1MDB Chairman Lodin Wok Kamaruddin and Khadem Al Qubaisi, then chairman of Abu Dhabi’s Aabar Investments, signed an agreement to form a joint venture. The following month, 1MDB announced it had raised $3 billion for its share of the partnership. “1MDB opted for a private placement to ensure the timely completion of this economic initiative,” the company said in a statement on April 15 of that year.
 
The timing was controversial. “1MDB may have been created with one of the key objectives being to raise a slush fund to finance Barisan Nasional’s election campaigns,” says MP Tony Pua, of the opposition Democratic Action Party. A statement from the prime minister’s office dismissed the allegations in the Wall Street Journal, saying they amounted to “political sabotage” at the hands of “certain individuals to undermine confidence in our economy, tarnish the government, and remove a democratically elected prime minister.” In a statement, 1MDB said it “has never provided any funds to the prime minister.”
 
Malaysia’s biggest-ever financial scandal has spotlighted a colorful cast of characters—some connected to 1MDB, some not. A politician since the age of 23, the mustachioed Najib is the eldest son of the country’s second prime minister following its independence from Britain in 1957, Abdul Razak Hussein, and a nephew of the third, Hussein Onn.
 
Najib’s wife, Rosmah Mansor, is an influential figure in her own right. A former executive at Island & Peninsular, a real estate company, she’s often lampooned in the local media for her bouffant hairstyle and penchant for luxury.
 
Riza Aziz, Rosmah’s son from her first marriage, is close to a Kuala Lumpur man about town who’s been linked to 1MDB named Low Taek Jho. Jho Low, as he’s known, is a whiz-kid dealmaker who exploded onto the gossip pages in 2009. One photo shows the moon-faced Low partying with California socialite Paris Hilton and clutching a bottle of Cristal champagne. The prime minister’s stepson co-founded a Los Angeles company that produced The Wolf of Wall Street, the 2013 film about lifestyle excesses and criminal exploits in the world of finance; Low got a full-screen “special thanks” credit at the end of Wolf. Low helped set up 1MDB’s first joint venture, with PetroSaudi International, according to reports in The Edge and the Sarawak Report.
 
An additional touch of glamour comes from Goldman Sachs executive Tim Leissner, a lanky, blue-eyed German who’s married to former U.S. fashion model and designer Kimora Lee Simmons, the ex-wife of Russell Simmons, co-founder of New York hip-hop music label Def Jam Recordings. In September 2013, when Najib and Rosmah traveled to San Francisco to open a new office of Khazanah Nasional, Malaysia’s sovereign wealth fund, Rosmah and Simmons were photographed together. Leissner, now Goldman’s Southeast Asia chairman, was a fixture in Malaysian dealmaking in the late 2000s. Goldman helped manage billionaire T. Ananda Krishnan’s 2009 initial public offering of Maxis, Malaysia’s biggest mobile phone service provider.
 
Goldman established a close and profitable relationship with 1MDB. From 2012 to 2013, the bank arranged three bond sales for the company, totaling $6.5 billion. Fees, commissions, and expenses for Goldman totaled $593 million—about 9.1 percent of the money raised—according to a person familiar with the sales. “These transactions were individually tailored financing solutions, the fee and commissions for which reflected the underwriting risks assumed by Goldman Sachs on each series of bonds, as well as other prevailing conditions at the time, including spreads of credit benchmarks, hedging costs, and general market conditions,” says Hong Kong–based Goldman spokesman Edward Naylor.
 
In 2013, Goldman arranged 1MDB’s $3 billion bond sale, the one passed up by Hanwha Life’s Song. The note is included in JPMorgan’s benchmark Asian and Emerging-Market Bond indexes. Goldman’s commissions, fees, and expenses from the sale were $283 million, or 9.4 percent of the amount raised, according to the prospectus. The person familiar with the transaction says Goldman’s take was high because the bank bought bonds from 1MDB, assuming the risk, and then resold them to customers.
 
In many ways, 1MDB’s star-crossed existence mirrors the misfortunes of this country of 30 million people. Najib set up 1MDB at a time when the Malaysian economy was on the mend; it expanded by 7.4 percent in 2010, becoming one of the fastest growing in Southeast Asia. The company—supported by the advisory board chaired by Najib and including high-ranking government officials from China, Saudi Arabia, and the United Arab Emirates—set out to be a state-owned strategic development company that would forge global partnerships, draw foreign investment to Malaysia, and build up the country’s industrial base.
 
Early on, 1MDB formed joint ventures with Saudi and Abu Dhabi companies. On a visit to Malaysia in July 2013, Japanese Prime Minister Shinzo Abe attended a signing ceremony that was meant to initiate discussions on 1MDB’s plan to issue Samurai bonds guaranteed by the Japan Bank for International Cooperation. None of these plans panned out as they were supposed to. Over time, to its growing number of detractors, 1MDB looked more and more like a giant black box, its inner workings echoing the mysteries suggested by the wayang kulit, traditional shadow puppets, that frolic on the office walls of the Kuala Lumpur–based company.
 
1MDB, which has announced plans to wind itself down, is reducing its debt, according to President Arul Kanda. “1MDB has undertaken various initiatives to reduce the company’s debt levels and ensure that maximum value is generated for its 100 percent shareholder, the Ministry of Finance,” Kanda said in a statement to Bloomberg Markets on July 16. As part of the plan, 1MDB has repaid a $975 million loan, while more than 40 potential investors have shown interest in one of its property developments, Bandar Malaysia. He said the company also intends to sell its power plants. “We are focused and are making good progress,” he said.
 
The 1MDB story begins in 2008. In December of that year, Terengganu, a sultanate located across the Malay Peninsula from Kuala Lumpur, got federal government approval to set up its sovereign wealth fund, the TIA. Goldman Sachs and Boston Consulting Group advised the TIA in its early days. Jho Low advised the TIA from January to mid-May, according to a statement released on his behalf to local media in May 2014.
 
In May 2009, the TIA raised 5 billion ringgit ($1.3 billion) through the sale of 30-year Islamic bonds. Guaranteed by the federal government, they were offered at an interest rate of 5.75 percent. In fact, according to Mahathir, the bonds were sold at a discounted price that effectively yielded bondholders 7 percent. “Who approved such terrible terms for a loan to a government-owned company?” the former prime minister asked on his blog. 1MDB said in response that the effective yield was actually 6.15 percent and was reasonable considering that these were Malaysia’s first 30-year notes.
 
Two months later, the Najib government quietly took over the TIA and renamed it 1MDB. As the new company was getting up and running, the well-connected Low laid the groundwork for 1MDB’s dealings with the Saudis, according to reports in The Edge and the Sarawak Report. The son of a wealthy Malaysian businessman, Larry Low, Jho studied at Harrow, an elite London boarding school. While there, he met Najib’s stepson, Riza Aziz, who was studying at the London School of Economics and Political Science, and came to know Riza’s mother, Rosmah, when she visited London, according to a New York Times report in February. Later, at the Wharton School at the University of Pennsylvania, he took a semester off to start a company called Wynton Group, managing $25 million pooled mostly from his friends’ families, according to an interview he gave to Malaysia’s Star newspaper in 2010.
 
In a similar vein, Low’s role at 1MDB involved “OPM”—other people’s money, says a former business associate in Kuala Lumpur. By now, Low had assembled an impressive array of connections. On Sept. 7, 2009, Low met Patrick Mahony, an executive of PetroSaudi International, in New York, according to a report in The Edge. Tarek Obaid, a co-founder of PetroSaudi, had introduced them to each other via e-mail on Aug. 28, the report said. It didn’t take long for 1MDB and PetroSaudi to cobble together a $2.5 billion joint venture. Mahony didn’t respond to e-mailed questions. Obaid couldn’t be reached for comment.
 
As it got off the ground, 1MDB worked with more than a dozen financial institutions, but it forged especially close ties with Goldman. A helping hand came from Roger Ng, Goldman’s head of Southeast Asia sales and fixed-income trading, a Malaysian national well-known for his connections to politicians and tycoons, according to two people who know him. Leissner, then based in Singapore as Goldman’s co-president for Southeast Asia, played a key role in expanding the bank’s business in Malaysia. He declined to comment for this article. Ng, who left Goldman last year, didn’t respond to phone calls or a text message.
 
In December 2009, Goldman won a license from Malaysia’s Securities Commission to set up fund management and corporate finance advisory operations in the country. “The future outlook for Malaysia’s capital markets and its asset management industry is very positive,” Leissner said in a statement released by the commission at the time. “Through our local presence, we look forward to playing a larger role in their development.”
 
For 1MDB, Goldman played multiple roles. In 2012, it advised the firm on its acquisition of Tanjong Energy Holdings from Malaysian billionaire Krishnan and domestic power plants from Genting, a conglomerate. The following year, the bank helped 1MDB purchase the Jimah Energy Ventures power plant in Selangor, Malaysia, a deal that was completed in 2014.
 
The true extent of the trouble at 1MDB didn’t become apparent until late last year. Scandal aside, 2014 was a difficult year for Najib and his government. First came the disappearance of Malaysia Airlines Flight 370 and all 239 people on board in March. Then, in July, Flight 17, also operated by the state-owned airline, crashed near Donetsk in strife-torn eastern Ukraine, possibly after being hit by a surface-to-air missile; all 298 passengers and crew died. It was around that time that the Sarawak Report and The Edge, under longtime editor Ho Kay Tat, began their exposés of 1MDB, adding to Najib’s woes.
 
The Sarawak Report was founded by Clare Rewcastle Brown, who was born in Sarawak, a state on the island of Borneo, of British parents and now runs the site out of London. (Her husband, Andrew Brown, who recently retired as the head of media relations at EDF Energy, is the brother of former U.K. Prime Minister Gordon Brown.) Earlier this year, the website claimed to have obtained e-mails and other documentation showing how Jho Low and several business associates siphoned $700 million from 1MDB’s venture with PetroSaudi Holdings, which was registered in the Cayman Islands in the Caribbean. Low, who has denied playing any role in 1MDB after the work he did for the TIA, didn’t respond to requests for an interview or to e-mailed questions. The government, without giving any details, has tried to discredit the e-mails as reported by the Sarawak Report, saying the communications may have been tampered with. Then on July 19, the Malaysian Communications and Multimedia Commission said it had blocked the Sarawak Report’s website in Malaysia for publishing content that could “destabilize the country.” Rewcastle Brown said she won’t be impeded by the government’s action, describing it as the “latest blow to media freedom.”
 
In an unprecedented crackdown, Malaysian authorities this year have arrested more than 150 journalists, activists, opposition politicians, and lawyers on sedition charges or under a peaceful assembly act that strictly regulates public protests. One of Malaysia’s best-known political cartoonists, who goes by the name Zunar, has been charged with nine counts of sedition and faces up to 43 years in prison.
 
On June 22, Thai Police arrested a tattooed Swiss national named Xavier Justo, a former executive at 1MDB investment partner PetroSaudi International, on the resort island of Koh Samui. Police said they suspected Justo of trying to extort money from PetroSaudi and leaking e-mails about the oil company’s dealings with 1MDB. Justo denied the allegations, the Bangkok Post reported.
 
Adding to a climate of fear and tension, the Malaysian police launched an investigation into whether government officials, including central bank personnel, were behind the leaking of documents that allegedly showed 1MDB money turning up in Najib’s accounts. The central bank on July 12 denied any impropriety.
 
As allegations swirl around him, the stakes for Najib are high. Not only is he prime minister and finance minister; he’s also president of a political machine, UMNO, that has been in power since Malaysia’s independence. What’s more, he’s chairman of the Khazanah Nasional sovereign wealth fund, which had $29 billion under management at the end of 2014. “Power is too concentrated to one person,” says Zaid Ibrahim, a former law minister who built the country’s largest law firm. He says the total lack of checks and balances in Malaysia has led to abuse of power.
 
In the early days of Najib’s rule, Malaysians had more cause for optimism than now, says Danny Quah, an economics professor at the LSE. Like many successful Malaysians overseas, Quah has maintained ties with his native country. He served on Malaysia’s National Economic Advisory Council from 2009 to 2011, and he still vividly recalls a day—March 30, 2010—when Najib stood in front of global investors and promised a “1Malaysia” where all Malaysians of different races would work together toward one goal—turning Malaysia into a developed nation by 2020. At the time, Najib had enough popular support to aim high. “Right then, it was a golden opportunity,” Quah says. “It’s a moment that passed.”

This story appears in the September issue of Bloomberg Markets magazine. With assistance from Ye Xie in New York


Saturday, March 28, 2015

Lee Kuan Yew - His concept

 

The passing of Singapore's first prime minister, Lee Kuan Yew on 23 March 2015, was the founding father of modern Singapore. And brought that country from third world to first world status in a single generation. To truly understand the approach on his stewardship during his tenure, these quotes of his sums it all.

"That was my intention. If the new PM fails, I have failed… Mahathir never thought that way. He undermined his successors.”
LKY, 2011

"If you can select a population and they're educated and they're properly brought up, then you don't have to use too much of the stick because they would already have been trained. It's like with dogs. You train it in a proper way from small. It will know that it's got to leave, go outside to pee and to defecate. No, we are not that kind of society. We had to train adult dogs who even today deliberately urinate in the lifts."
LKY, 2013

Thursday, November 14, 2013

Ministers knows best, dont ask why

Are We Being Served by Half-Past-Six Ministers?
By Kee Thuan Chye
Yahoo! News
13.11.2013

Do we have half-past-six ministers running the country? Well, from the utterances of at least three ministers in the last few days, that seems to be so.

Minister in the Prime Minister’s Department Shahidan Kassim put his foot in his mouth when he declared in Parliament last Monday that the electricity and water bills incurred by the prime minister’s official residence in Putrajaya last year – amounting to a staggering RM2.55 million – was among the lowest in the world. And how did he come to this conclusion? Did he make comparisons with other countries?

No, he came to this conclusion based on his own “observation”!

Woooh! RM2.55 million of taxpayers’ money spent and that’s what we get? A personal observation by one of our top public servants that it’s relatively peanuts?

Asked by Opposition MPs for comparisons with the utility bills of the residences of other countries’ leaders, he said he did not have them. “If you want the specifics, you will need to give me time to collect the details,” he said. Which clearly showed he was simply tembak-ing (shooting in the dark).

But how can a minister simply tembak? Has he no regard for the intelligence of his fellow MPs and, worse, that of the rakyat? How can he say the utility bills are among the lowest in the world – in the world, mind you, don’t play-play! – without scientific evidence to back up his claim? Did he pass Form 3 or not?

What also drew derisive laughter that was so loud it could have been heard in Putrajaya was his justification for his observed conclusion. He said the utility bills were relatively low because the country’s top leaders practised the “frugal system”! He even added, “I believe the frugal spending system implemented in Seri Perdana is the best.”

Er … Shahidan, would you have any facts and figures to explain what this “frugal system” is? And why you say it is “the best”?

Does this frugality extend to Prime Minister Najib Razak’s overseas travel expenses in 2011, which amounted to RM10.1 million, and his 10-day visit to London, New York and Washington, DC, in May 2012, which cost taxpayers RM2.9 million?

Is it frugal to spend RM2.9 million on a 10-day trip?

Does it extend to the utility bills of Deputy Prime Minister Muhyiddin Yassin last year being as high as RM964,722?

In the first place, do we need an official residence for the prime minister as big as 17 hectares and that of his deputy as big as 7.3 hectares? Whom are we trying to impress? Even the White House, residence of the president of the United States of America, is smaller than both, at 7.2 hectares.

In view of all of the above, if Shahidan cannot tell us what he means by the so-called “frugal system”, what bullshit is he saying?

Meanwhile, his Cabinet colleague, Federal Territories Minister Tengku Adnan Tengku Mansor, also sounded like he was talking bullshit last Monday when he defended Kuala Lumpur City Hall’s demolition work at the Sri Muneswarar Kaliyaman Temple. He said the demolition was part of the Government’s plan to “beautify” the temple!

How does demolition reconcile with beautification? Aren’t they actions that are poles apart? Besides, there had been no previous official mention of beautification until now.

More important, is it right for the Government to go into a temple and demolish it because it wants to beautify it? Shouldn’t it discuss the beautification idea with the temple authorities first, and see if the latter are amenable to it? How can the Government simply bulldoze its way into the temple and do what it likes?

What’s the real intention behind the demolition, Adnan? Is it not to get a part of the land the temple is sited on for the developer Hap Seng Consolidated Bhd so that the latter could build something there?

If it is, why don’t you just say so? If it’s legal for Hap Seng to take that bit of land because it owns it, by all means the law must follow its course. Then you should call a spade a spade and say why KL City Hall acted as it did. What would you have to fear if you are following the law? Why must you hide behind the façade of “beautification”?

Furthermore, why must you profess to be an expert on Hindu temples by declaring that the Sri Muneswarar Kaliyaman structure is merely a shrine, not a temple –because, so you said, proper Hindu practices were not incorporated into the construction? The temple was built 100 years ago; you want to dispute the practices that went into its construction now?

In any case, if you say it’s merely a shrine, and therefore of little consequence, why bother to beautify it?

One other thing, Adnan. In saying that you wanted to turn the temple into a tourist attraction by making it like “the four-faced Buddha in Thailand”, you were clearly being insensitive. If you needed to make a comparison, you should have found a Hindu equivalent. How would you have felt if someone had made a comparison between a Malaysian Muslim mosque and a Christian church elsewhere? Would that person have had hell to pay for doing that? Would you have perhaps told that person to emigrate?

No wonder even the deputy minister in the Prime Minister’s Department P. Waythamoorthy has come out to chide you. He says you have “no business in interpreting what constitutes a shrine or temple”. And rightly so.

He adds, pointedly, “As a federal minister, he should respect the feelings and sensitivities of Hindus, instead of justifying an unconscionable act by the Kuala Lumpur City Hall.” You should be grateful he didn’t tell you to emigrate.

Take my advice, Adnan. Next time, tell it like it is. Don’t try and play politics. We know you and your political party are scared of losing Indian support, but if you try to hide the real intention with something that sounds untrue, that’s even worse.

Come to think of it, why do some Indians still want to support your arrogant government? Why did many of them vote for Barisan Nasional (BN) at the last general election? Perhaps it’s time they considered the better option.

Your colleague Jamil Khir Baharom, another minister in the Prime Minister’s Department, is the third official who has given BN a bad name.

Last Monday, in Parliament, he appeared not to know the difference between the 20-point agreement that is supposed to protect Sabah’s rights and interests when it joined Malaysia in 1963, and the 10-point solution that Najib’s Cabinet formulated in 2011 to allow Christians in Sabah and Sarawak to use the word ‘Allah’ for God.

Jamil reportedly said the 10-point solution was the one agreed upon in 1963! He had to be corrected by Opposition MPs.

After being corrected, he went on to confuse everyone by saying that the word ‘Allah’ was exclusive to Muslims in Malaysia according to State-level Islamic laws and that the matter should no longer be disputed after the Court of Appeal’s ruling made last month. He did not shed any light on how this would affect the Christians of Sabah and Sarawak, much to the frustration of Opposition MPs who wanted him to clearly state the Government’s current stand.

When reporters later asked him to state the stand, his pathetic reply was “I have already explained. Don’t confuse me more.” Hahaha! This means he was indeed confused!

If ministers can be so confused and unsure about Government matters, how did they get to be ministers in the first place? That’s something Najib will have to account for.

He will also have to ensure that his ministers are not lax and that they don’t say stupid things, as they have been doing even before the last few days. In Parliament today are among the brightest and sharpest Opposition MPs. They include Rafizi Ramli, Tian Chua, Gobind Singh Deo, Nurul Izzah Anwar, Tony Pua, N. Surendran, Khalid Samad, Liew Chin Tong, Zairil Khir Johari, Ong Kian Ming … and I’m not even mentioning the old warhorses.

Najib’s ministers will have to measure up to them. If they can’t, they will be laughed out of the House. Even worse, at the next general election, they might be dropped from contesting or be duly voted out.

I don’t suppose we’d miss them.

* Kee Thuan Chye is the author of the new book The Elections Bullshit, now available in bookstores.