Former Malaysia government used money raised from Khazanah to pay 1MDB dues according to sources

Najib Razak (middle) resumes giving statement to anti-graft agents on Thursday
The Straits Times

KUALA LUMPUR – The government of former Malaysian Prime Minister Najib Razak used money raised from a deal with sovereign wealth fund Khazanah Nasional Berhad to pay for some of the liabilities of state fund 1Malaysia Development Berhad (1MDB), two sources told Reuters.

Khazanah paid the government 1.2 billion ringgit ($301.05 million) in mid-2017 in exchange for redeemable shares that the finance ministry owned, the sources said, adding that the funds were used to pay some of 1MDB’s dues to Abu Dhabi fund IPIC.

1MDB had agreed to pay $1.2 billion to IPIC as part of a settlement agreement reached in April 2017 after 1MDB defaulted on its bonds.

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

Khazanah told Reuters in an e-mail that the ministry of finance exercised its right in August 2017 to redeem outstanding Redeemable Convertible Cumulative Preference Shares amounting to 1.2 billion ringgit, which were issued to the ministry in 2011.

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

Najib’s government also used about $500 million raised from a land sale agreement with the central bank to pay some of 1MDB’s liabilities to IPIC, Reuters reported earlier.

Najib, whose near 10-year rule ended two weeks ago, returned to an anti-graft agency on Thursday (May 24) to resume his explanation for the suspicious transfers of millions of dollars into his bank account.

Entering the Malaysian Anti-Corruption Commission, the embattled 64-year-old Najib appeared relaxed, smiling and waving as he walked through a throng of journalists outside the building.

Najib gave the first part of his statement on Tuesday to explain the transfers of 42 million ringgit ($10.6 million) into his bank account that investigators tracked back to a former unit of 1Malaysia Development Berhad, a state fund that he had founded.

The sum represents just a fraction of billions of dollars that went missing from 1MDB in a scandal that was a key reason why voters dumped Najib in an election on May 9.

He was defeated by a coalition led by 92-year-old Mahathir Mohamad, who had quit as prime minister in 2003 after leading Malaysia for 22 years. Mahathir came out of retirement to join the opposition against Najib after becoming convinced that his former protege was corrupt.

The new prime minister has barred Najib and his wife, Rosmah Mansor, from leaving the country, and ordered the anti-graft agency to investigate where 1MDB’s money went.

Mahathir has also accused Najib’s government of understating Malaysia’s national debt, saying the true figure is 1 trillion ringgit ($250 billion), equivalent to 65 percent of the gross domestic product, whereas Najib put the figure at 50.9 percent.

In a late night Facebook post on Wednesday, Najib said Mahathir and his finance minister’s “alarming and confusing” remarks about the country’s debts and 1MDB liabilities “tell half the story” and had caused the stockmarket to fall.

“While you may want to slander and put all the blame on me to give a perception of a dire financial position to justify why you cannot deliver on your manifesto promises…you must remember that the country and our people comes first,” he wrote.

Najib has consistently denied any wrongdoing at 1MDB.

Investigators have already searched Najib’s home and several properties, seizing cash, jewelery and luxury items estimated to be worth millions of dollars.
The Star newspaper reported on Thursday that the cash found totaled 130 million Malaysian ringgit (nearly $33 million).
The initial focus of the Malaysian Anti-Corruption Commission’s probe into 1MDB is on transfers of 42 million ringgit from SRC International to Najib’s account.

SRC was created in 2011 by Najib’s government to pursue overseas investments in energy resources, and was a unit of 1MDB until it was moved to the finance ministry in 2012.

MACC has been able to track the money trail from SRC more easily because transactions were made through Malaysian entities, whereas most other transfers of 1MDB funds went through foreign banks and companies.