Najib's government tapped funds from Khazanah and central bank to service 1MDB liabilities

KUALA LUMPUR — Funds from sovereign wealth fund Khazanah Nasional Berhad and Malaysia’s central bank were allegedly used by the government of former Prime Minister Datuk Seri Najib Razak to pay the dues of state fund 1Malaysia Development Berhad (1MDB).

Quoting two sources, Reuters reported on Thursday (May 24) that Khazanah paid Mr Najib's government RM1.2 billion (S$404 million) in mid-2017 in exchange for redeemable shares that the finance ministry owned. The funds were used to pay some of 1MDB's dues to Abu Dhabi fund International Petroleum Investment Company (IPIC).

The finance ministry did not immediately respond to requests for comment.

Khazanah told Reuters in an e-mail that the finance ministry exercised its right in August 2017 to redeem outstanding Redeemable Convertible Cumulative Preference Shares amounting to RM1.2 billion, which were issued to the ministry in 2011.

It also said it has no authority to determine how Putrajaya used the funds it raised as the shares were issued on behalf of the Finance Ministry, then headed by Mr Najib.

However, it did not comment on whether the funds were used for repaying 1MDB's dues.

Mr Najib's government also used about US$500 million (S$671.47 million) raised from a land sale agreement with the central bank to pay some of 1MDB's liabilities to IPIC.

The Wall Street Journal (WSJ) reported on Thursday that funds 1MDB claimed originated from its sale of power plants as part of a “rationalisation programme” had instead come from Bank Negara Malaysia through a land deal.

Following the report, the central bank later said it has handed details of the transaction to the anti-graft agency.

"The transaction complied with all the governance requirements and relevant laws that govern the Bank," Bank Negara said in a statement, adding that information on the transaction had been passed to the Malaysian Anti-Corruption Commission (MACC).

.1MDB was in financial distress late last year and lacked the cash flow needed to pay the sum owed to IPIC.

The reports corroborate Finance Minister Lim Guan Eng’s revelation on Wednesday that 1MDB cannot meet its debt obligations on its own, and needed the Finance Ministry to pay nearly RM7 billion of its debt and interests last year.

In the declassified Auditor General’s audit of the state investment firm, it was also shown that the firm still required over RM42 billion to clear its liabilities, suggesting that it was as debt-ridden now as when the scandal first emerged three years ago.

The report also showed that the firm still needed over RM1.5 billion annually until 2024 just to service the debt.

It is unclear how 1MDB would have made these payments without government aid as the firm has wound down most of its operations and lacked any clear revenue streams.

The firm is now the subject of a multi-agency investigation ordered by newly elected Prime Minister Tun Dr Mahathir Mohamad.

Dr Mahathir's predececssor, Mr Najib, is being questioned by the Malaysian Anti-Corruption Commission over a RM2.6 billion “donation” that is believed to have originated from 1MDB.

He is also under investigation over the transfer of RM42 million from a former subsidiary of the firm. AGENCIES