1 MDB's 2013 Annual Report Disclosures Of The USD 3 Billion Bond Issue Raise A USD 570 million question

by Ganesh Sahathevan


The UK fugitive from Malaysian law, now subject of an Interpol Red Flag in more than 100 countries,  Clare Rewcaslte-Brown, has suggested that the proceeds from the 1 MDB USD 3 billion bond issue may have been deposited and/or invested at Falcon Private Bank in Singapore,and that part of that sum might have found its way to the bank accounts of 1 MDB chairman, and prime minister of Malaysia, Dato Seri Najib Razak.
Najib Razak has claimed that the money in his bank account was a donation (from an unnamed source) , used for 1 MDB CSR purposes and other charitable works, even if his benefactor did not  describe his very generous gift as such.
All this has prompted this writer to relook 1 MDB's Annual Report for the year ended 31 March 2013,to determine how the proceeds from the bond issue have been reported. The numbers and notes raise a USD 570 million question,at least in this writer's mind. 
As disclosed in Note 33, Item (p) at pages 112& 116  the 2013 AR the  net proceeds from the 1 MDB International  USD 3 billion bond :issue in ringgit terms is  RM 8.434254 billion. The applicable exchange rate (also disclosed in the notes concerning accounting policies) is the the rate on the balance date ie 31 March 2013. An exact rate is not readily  available ,but a rate of 1 USD=RM 3.1017 is implied in the financial statements.

(Using that implied rate the net proceeds from the bond issue of RM RM 8.434254 billion equates to USD 2.71922203, which corresponds approximately  to claims made in the  Australian Financial Review, among others,  that the bonds were purchased en bloc by Goldman Sachs at a discount of of about 9-10% of face.

According to Note 43 on  page 148 of the 2013 AR,   RM 4900 711 000 is held as investment and RM 3 276 323 000 in cash " in  a financial institution with good credit standing" (this wording is repeated in the  note below, copied and pasted from the 2014 AR)

Note 27 confirms that that the sum of RM 4900 711 000 is part of  the net  proceeds of the 1 MDB Global Investments Ltd private debt security issue of USD 3 billion (see again,  note below, copied and pasted from the 2014 AR).

Note 38 at page 123 states that RM 5 045 955 000 is held at deposit with a licensed bank ,an increase of RM 4 773 477 000 from the previous year's balance of RM 272 478 000 from the previous year.Note 38 is an explanation of the item "Cash and Cash Equivalents"  from the Statement of Cash Flows at page 20 of the 2013 AR. Given that the proceeds from the  USD 3 billion bond :issue were received on 19 March 2013, and given that the notes to the financial statements in 2013 and then again in 2014 state that the proceeds were banked and invested " in  a financial institution with good credit standing" it is safe to assume that the bulk of that cash balance is from the proceeds of the bond issue.(The  RM 4900 711 000 is shown in the Statement of Cash Flow as a separate item, as an investment outflow).

Notes 27.43. and 38 ,read together with the Statement of Cash Flows, suggests that the subject matter is the same ie the net proceeds of the

 1 MDB International  USD 3 billion bond :issue,even if the  numbers do not always add up. For example, while the sum total raised is reported to be RM 8.434254 billion, the sum total disclosed in Note 43 is RM 8.177034000.

Then, if one reads Note 27 together with Note 38, the sum total cam range between RM  9.674188000 billion and RM 9.946666000.

Nevertheless, the sum RM 8.177034000 as disclosed in Note 43 is one that is disclosed in 1 MDB's audited financial statements,and it does suggest a shortfall of RM 257.22 milllion between what is reported to have been raised, and the sum of its components.

This then raises the question whether there is  further discrepancy between the reported bank balances, ie a difference of  RM 1769632000

between the RM  3276323000 reported in Note 43 and RM 5045955000 in Note 38.

Interestingly, that discrepancy stated in US Dollars  ,converted at a rate of RM 3.1012. is equal USD 570.63 million.