PM Najib's response to Tony Pua reveals a debt to IPIC of an indeterminate, potentially very,very large sum: Delloites has questions to answer..
by Ganesh Sahathevan
Prime Minister and Minister For Finance Najib Razak provided this carefully worded response to Parliament this week, in answer to a question from Tony Pua MP ,who asked if 1 MDB owed the International Petroleum Investment Corporation (IPIC) US$ 481 million:
“Notes in the 1MDB financial report ended March 31, 2014, clearly state that no such amount was borne by 1MDB from IPIC,” said Najib, who is also the prime minister.
Najib said any party had the right to determine the method of reporting their financial statements.
(See story below)
The choice of words is interesting in that the notes to the accounts do not anywhere say," no such amount was borne by 1MDB from IPIC". It would be curious if there was such a statement.Unless there is some obvious dispute, one would not find a note denying a liability.
However, the notes do disclose a transaction with IPIC's wholly-owned subsidiary Aabar,and what is disclosed ought to be of greater concern to Najib, Pua, and indeed anyone concerned with the financial well being of the country.
Note 41 (j) Aabar Options, which deals with an option transaction which appears to be at the heart of Pua's question and Najib's denial, states clearly that " a reliable estimate of the amount (owed) cannot be determined as at the date of the report".
The notes then go on to explain that the amount will be determined inter alia (ie among other matters) by the "successful" listing of 1 MDB's energy assets.
That listing has since been shelved in favour of what we have been told will be a trade sale, but bottom line here is that there is now even greater uncertainty as to the actual amount owed.
Najib and 1 MDB may want to give the impression that "cannot be determined" can also mean nothing is owed, but that would be stretching belief to Arul Kanda proportions where one might as well believe in the tooth fairy ,or her Malay equivalent.
Very large and reputable companies have been known to gone under when an amount owed cannot be estimated. Barings Bank was a case in point. The reason is really quite simple for in theory an option instrument ,while capable of rewarding the holder with very large profits, can also lead to very large losses. The terms and conditions of the option agreement (or contract) are everything and the fact that Najib who is also chairman of 1 MDB cannot tell what the absolute bottom line loss on the option (ie the amount owing) might be should be of great concern.
This could be a potentially Petronas eating sink-hole that the country is looking at.
What is equally, or perhaps even more worrying is Najib's assertion that any party had the right to determine the method of reporting their financial statements. This is a lie, if not an appalling lack of understanding of the basic rules of financial accounting and reporting. Delloites
as auditors (not Ernst as reported below) ought in fact have qualified the accounts given that a large amount owing could not be determined. Delloites ought to have put Najib right.
Prime Minister and Minister For Finance Najib Razak provided this carefully worded response to Parliament this week, in answer to a question from Tony Pua MP ,who asked if 1 MDB owed the International Petroleum Investment Corporation (IPIC) US$ 481 million:
“Notes in the 1MDB financial report ended March 31, 2014, clearly state that no such amount was borne by 1MDB from IPIC,” said Najib, who is also the prime minister.
Najib said any party had the right to determine the method of reporting their financial statements.
(See story below)
The choice of words is interesting in that the notes to the accounts do not anywhere say," no such amount was borne by 1MDB from IPIC". It would be curious if there was such a statement.Unless there is some obvious dispute, one would not find a note denying a liability.
However, the notes do disclose a transaction with IPIC's wholly-owned subsidiary Aabar,and what is disclosed ought to be of greater concern to Najib, Pua, and indeed anyone concerned with the financial well being of the country.
Note 41 (j) Aabar Options, which deals with an option transaction which appears to be at the heart of Pua's question and Najib's denial, states clearly that " a reliable estimate of the amount (owed) cannot be determined as at the date of the report".
The notes then go on to explain that the amount will be determined inter alia (ie among other matters) by the "successful" listing of 1 MDB's energy assets.
That listing has since been shelved in favour of what we have been told will be a trade sale, but bottom line here is that there is now even greater uncertainty as to the actual amount owed.
Najib and 1 MDB may want to give the impression that "cannot be determined" can also mean nothing is owed, but that would be stretching belief to Arul Kanda proportions where one might as well believe in the tooth fairy ,or her Malay equivalent.
Very large and reputable companies have been known to gone under when an amount owed cannot be estimated. Barings Bank was a case in point. The reason is really quite simple for in theory an option instrument ,while capable of rewarding the holder with very large profits, can also lead to very large losses. The terms and conditions of the option agreement (or contract) are everything and the fact that Najib who is also chairman of 1 MDB cannot tell what the absolute bottom line loss on the option (ie the amount owing) might be should be of great concern.
This could be a potentially Petronas eating sink-hole that the country is looking at.
as auditors (not Ernst as reported below) ought in fact have qualified the accounts given that a large amount owing could not be determined. Delloites ought to have put Najib right.
END
1MDB does not owe IPIC US$481 million, says Najib
BY EILEEN NG
Published: 27 October 2015 10:17 AM | Updated: 27 October 2015 11:46 AM
Datuk Seri Najib Razak, who is the finance minister and prime minister, has denied that 1Malaysia Development Berhad owes International Petroleum Investment Corporation US$481 million (RM2.04 billion). – The Malaysian Insider file pic, October 27, 2015.1Malaysia Development Berhad does not owe Abu Dhabi wealth fund International Petroleum Investment Company (IPIC) US$481 million (RM2.04 billion), says Datuk Seri Najib Razak.
In a written reply to Petaling Jaya Utara MP Tony Pua, the finance minister said there was no such amount based on the state investment arm’s 2014 financial report.
“Notes in the 1MDB financial report ended March 31, 2014, clearly state that no such amount was borne by 1MDB from IPIC,” said Najib, who is also the prime minister.
Pua asked if the state investment firm still owed US$481 million as stated in IPIC's December 2014 audit report.
Najib said any party had the right to determine the method of reporting their financial statements.
IPIC's subsidiary Aabar Investment PJS in 2012 acquired up to 49% of two energy firms – Powertek Investment Holdings and 1MDB Energy (Langat) Sdn Bhd – as part of the condition for the provision of a guarantee by IPIC for US$3.5 billion of 1MDB bonds.
Pua previously demanded that the state investor explain the US$975 million loan it took from a consortium of banks led by Deutsche Bank to buy back options granted to IPIC, and why this loan was not reported in 1MDB's 2014 financial statements.
He asked if it was because the loan was used to cover up the US$1.22 billion the firm said it redeemed from the Cayman Islands.
He added that the state investor had yet to confirm if it still owed IPIC US$481 million, adding that this debt was reflected in the firm’s financial statements as audited by Ernst & Young. – October 27, 2015.
1MDB does not owe IPIC US$481 million, says Najib
BY EILEEN NG
Published: 27 October 2015 10:17 AM | Updated: 27 October 2015 11:46 AM
Datuk Seri Najib Razak, who is the finance minister and prime minister, has denied that 1Malaysia Development Berhad owes International Petroleum Investment Corporation US$481 million (RM2.04 billion). – The Malaysian Insider file pic, October 27, 2015.1Malaysia Development Berhad does not owe Abu Dhabi wealth fund International Petroleum Investment Company (IPIC) US$481 million (RM2.04 billion), says Datuk Seri Najib Razak.
In a written reply to Petaling Jaya Utara MP Tony Pua, the finance minister said there was no such amount based on the state investment arm’s 2014 financial report.
“Notes in the 1MDB financial report ended March 31, 2014, clearly state that no such amount was borne by 1MDB from IPIC,” said Najib, who is also the prime minister.
Pua asked if the state investment firm still owed US$481 million as stated in IPIC's December 2014 audit report.
Najib said any party had the right to determine the method of reporting their financial statements.
IPIC's subsidiary Aabar Investment PJS in 2012 acquired up to 49% of two energy firms – Powertek Investment Holdings and 1MDB Energy (Langat) Sdn Bhd – as part of the condition for the provision of a guarantee by IPIC for US$3.5 billion of 1MDB bonds.
Pua previously demanded that the state investor explain the US$975 million loan it took from a consortium of banks led by Deutsche Bank to buy back options granted to IPIC, and why this loan was not reported in 1MDB's 2014 financial statements.
He asked if it was because the loan was used to cover up the US$1.22 billion the firm said it redeemed from the Cayman Islands.
He added that the state investor had yet to confirm if it still owed IPIC US$481 million, adding that this debt was reflected in the firm’s financial statements as audited by Ernst & Young. – October 27, 2015.
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