Delloitte confirms only RM 13.4 Billion of 1 MDB's RM 15.4 Billion- RM 2 Billion missing ?

by Ganesh Sahathevan
At the Public Accounts  Committee hearings yesterday ,10 June 2015,  1 MDB auditor Delloittes confirmed that  evidence was found for  only RM 13.4 Billion of 1 MDB's RM 15.4 Billion in investments held at BSI Bank in Singapore.

As reported by The Star: 

(PAC chairman) Datuk Nur Jazlan Mohamed described the probe into Deloitte’s role as auditors as “a blessing in disguise” as it had provided the bipartisan committee crucial information.On 1MDB's standing as of March 31, 2014, he said the committee had accepted Deloitte's explanation of its unqualified audit which was carried out in a “true and fair” manner.“They said 1MDB was a going concern and had sufficient assets to operate as a sovereign fund,” he said, adding that 1MDB had assets totalling RM13.4bil in Singapore’s BSI Bank.

The above seems to be at odds with these figures released by Arul Iskandar Kandasamy:

The RM 15.4 billion in " Total Investment Cost" includes  the mysterious  "units" originally believed to be cold hard cash ,held via Brazen Sky  at BSI. 

According to the PAC and Delloites however , the amount held by  Brazen Sky at BSI is RM 13.4 billion. Recalling that BSI is only supposed to be holding Brazen Sky assets, there is an obvious discrepancy and one is left to ponder if;

a) the Brazen Sky BSI deposit has grown more than two fold; or

b) the amount reported by Arul Kanda is over-stated by RM 2 billion .Here one assumes that the rest of what comprises "Total Investment Cost" is also held at BSI. This is not an unreasonable assumption given that :

i) 1 MDB has always ever only referred to assets held at BSI 

ii) Even when Second Minister for Finance Husni "corrected" the record to say that what was held at BSI was not cash, he referred to "units" guaranteed by a sovereign fund.That form of words would cover the "Aabar Investment Deposit".

Given 1 MDB's problems making loan repayments of only RM 2 billion,it is highly unlikely that the Brazen Sky deposit grew two fold. 

Given  Arul Iskandar Kandasamy's assertion that his numbers are extracted from the audited financial statements for the year ended 31 March 2014, the question of whether the auditors could not confirm the existence of some RM 2 billion is not an unreasonable one.  The amount in question, RM 2 billion, is approximately USD 530 million at today's depressed rates,and is in the ball park of what Sarawak Report reported was siphoned out of 1 MDB's BSI accounts.

END 

NOTE 

• In an earlier post it has been demonstrated that 1 MDB's financial statements for the year ended 31 March 2014, audited by  Delloitte's ,show that the series of transactions that led to the so-called Cayman Island's investments generated no cash. That analysis has since been confirmed by other reports. The analysis provides additional grounds as to why there is disagreement between what the  auditor's can  confirm and what Arul and 1 MDB claim they have in cash and assets. 

The analysis is provided below for reference:

a) In the Notes to the Accounts,in particular  Notes  18,19 and 30 ,the details of the 1 MDB PetroSaudi loan are provided,and it is clear that the transactions were all executed and completed in the year ended 31 March 2013

Therefore, everything about that transaction ,or series of transactions, should be detailed in the 2013 financial statements

b)Note 18 on Page 86 says that in 2012 there was a revaluation loss of  RM 516 018,000.This is due to an accounting procedure ,where cashflows from the notes are revalued according to current market interest rates (which is different from the interest payable on the notes) .So,in 2012 applying that procedure the notes had to be devalued,hence therevaluation loss of  RM 516 018,000.

This however is a paper loss (ie no money has been lost selling the notes),so in the Statement Of Cash Flow, that figure is backed into profit,to reflect the fact that no cash was lost.

c) However, also in  the cash flow statement on page 17 a sum of RM 510,578,000 in Mudaraba profits has beenbacked out..Note that this is not the opposite of the above, and note  that there is a difference in terminology, ie "Mudaraba revaluation loss" vs  "Mudaraba profits". 

d)So, what are these  "Mudaraba profits"?

They are, as explained in Notes 18,19 and 30,  and are clearly the profits from the Mudaraba notes issued by 1 MDBPetroSaudi .

However, Arul Kanda and 1 MDB all say that the profit was RM 1.78 billion ,that is about  RM 1.2 billion short of what is implied in the Statement of Cashflow,

e) In addition,this is a PAPER profit .So, it does appear that  no cash profit was  generated from the transaction.That would explain why 1 MDB is having trouble showing us the money from that deal.

f) Could it be, for the sake of argument,  that the RM 510,578,000 in Mudaraba profits was only the paper portion of the profit,and that the actual profit included a RM 1.78 billion cash profit,for a total profit of approximately RM 2.3 billion?

g) To confirm if that is true, we look at the Net Cash From Operations (ie cash from running the business) on Page 18-and we see that the number is only RM 762,930,000.We also know  that almost all of that came from the power stations. 

h)Then,perhaps, 1 MDB considers the profit from the notes to be profit from investment activities. To test that proposition we look at Page 19,and there is nothing there to support that proposition. Instead what we do see is  that in 2012,1 MDB contributed a RM 1,018,000,000 to an investment in a Mudaraba facility -one assumes this is the same 1MDB PetroSaudi facility.

So, in conclusion, it does seem  that no  cash was ever received from PetroSaudi,and that the profit from the Notes,was only  a paper profit,,and that profit  was only RM RM 510,578,000.

Meanwhile, books must balance,and anything lost must be accounted for.

So far we know that the "investment" in PetroSaudi was "converted" into Murabaha Notes. To support that assertion one can see from the  Balance Sheet  on Page 13 , that 1 MDB held RM 5,710,215,000 in Murabaha Notes as at 1 April 2011.

However, while Note 19 says that the Murabaha Notes are now classified "investments held for sale", there is no such item on the balance sheet.

The figures for investments and other assets held do not reflect anything near RM 5 billion,EXCEPT for one item, and that is "Amount Due From Subsidiaries". 

As one can see that figure , compared to the previous year, has grown by approximately RM 5 billion, suggesting that there has been a BOOK ENTRY moving the  RM 5,710,215,000 in Murabaha Notes to "Amount Due From Subsidiaries". 

Note 28 which provides details of the item  "Amount Due From Subsidiaries" does not say which or what subsidiaries, but there is a clue in the the currency exposure profile, where it is disclosed that the US dollar exposure (in Malaysian Ringgit) is RM 7 118 578 ,000 ie the bulk of that sum.

I cannot think of any other 1 MDB subsidiary except 1 MDB PetroSaudi that has been extended a facility of that size.Note also that 1 MDB PetroSaudi appears to still be a subsidiary, even if it is dormant.There is nothing to suggest that it has been liquidated. 

Therefore, the  above taken together suggests  that the Murabaha Note "redemption" was nothing more than a series of book entries. In other words, whatever cash was contributed to 1 MDB PetroSaudi is lost for good.

The 2013 financial statements were audited by Delloites ,who have certified that the statements have been prepared in accordance with accepted account practice, and provide a true and fair view of 1 MDB's financial position.

END

Link for the above at http://sahathevan.blogspot.com.au/2015/03/1-mdb-audit-ag-must-will-find-that-loss.html