Did 1 MDB & Kanda account for a RM 2.4 Billion discrepancy ; is the discrepancy as high as RM 8.6 billion?

by Ganesh Sahathevan

In June this year 1 MDB and its CEO Arul Kanda provided what they said was an exhaustive and detailed account of how some RM 42 billion in debt had been utilized. They claimed that the figures, provided in their diagram below ,were extracted from information disclosed in 1 MDB's annual financial statements.



Of  special interest to this writer and one imagines  many others, is the utilization of the 1 MDB Global International (1 MDB GIL) USD 3 billion debt issue.

As disclosed in Note 33, Item (p) at pages 112 and 116  of  1 MDB's 2013 Annual Report
the  net proceeds from the 1 MDB GIL  USD 3 billion bond issue in ringgit terms was   RM 8.434254 billion.

Then, according to Note 43 on  page 148 of  1 MDB's 2013 Annual Report,    RM 4900 711 000 was held as investment and  RM 3 276 323 000 in cash at the balance date (31 March 2013)  " in  a financial institution with good credit standing" (this wording is repeated in the  note below, copied and pasted from the 2014 AR.)

One can immediately see that these figures add up to only RM 8.177034000 billion, a discrepancy of RM 257.220 million or approximately USD 83 million (for an explanation of how applicable exchange rates were derived ,and how net  proceeds from the bond issue were corroborated see story below)

That discrepancy of USD 83 million or RM 257.220 million is serious enough and needs answering, but let us get back to the claims made by 1 MDB and Arul Kanda in their exhaustive clarification. For ease of reference the provided this graphic, and as one can see from the very last item that the proceeds from the 1 MDB bond issue stood at RM 5.1 billion ringgit at the last balance date ,that is 31 March 2014. Assuming that all the RM 0.9 billion surplus cash is also from the net proceeds of the bond issue, then one has a total of RM 6 billion, short of some RM 2.4 billion of the total amount.

 

At this point, one needs to compare what 1 MDB and Kanda have said against what has been disclosed in 1 MDB's  audited financial statements, and according to the financial statements for the year ended 31 March 2014, the excess over the  RM 4900 711 000  that was not placed in various investment portfolios at a "financial institution with good credit standing" was used for "working capital and debt repayment purposes". This is not however what 1 MDB and Kanda have said.

 Where reference is made to working capital it has been bundled with finance costs (ie interest) and no mention is made of "debt repayment". Given the very specific nature of the 1 MBD GIL bond issue one would expect that the utilization of that source of funds would have been separately disclosed, but it has not.

 Then, it is also important to keep in mind that the figure  of RM 5.1 billion may represent some RM 200 million in capital appreciation ,thus adding that additional  amount to the discrepancy in 1 MDB and Kanda's clarification, bringing the sum unexplained to RM 2.6 billion.

The figure  of RM 5.1 billion corresponds to what is disclosed in 1 MDB's financial statements for the year ended 31 March 2014 and it is  compared with the initial amount of   RM 4900 711 000 described above. Hence, the RM 5.1 billion figure most likely represents a capital appreciation of RM 200 million (no addition to investments was disclosed in the notes). Hence, not all of that RM 5.1 billion can be relied on to explain the utilization of that  RM 42 billion in borrowed money.
 

In fact , the story may be far  worse. The top line of their graphic shows that RM 6 billion in debt was "inherited". No evidence has been provided that this "inheritance" has been paid-off , and hence it is hard to see how  the  "inherited debt" can explain utilization of any part of  that RM 42 billion in borrowed money.

Added together , some RM 8.6 billion may not have been accounted for.

Extract from the 1 MDB 2014 Annual Report.