Selasa, 20 Januari 2015

Did 1Malaysia Development Berhad (1MDB) mislead Deloitte Malaysia on the repatriation of the US$1.23 billion “investment” fund in Cayman Islands in order to have the March 2014 financial statements signed off?

Media Statement by Tony Pua, DAP National Publicity Secretary and Member of Parliament for Petaling Jaya Utara in Kuala Lumpur on Friday, 9 January 2015:

The 1Malaysia Development Bhd (1MDB) financial statements for the year ending March 2014 which was filed in October 2014, disclosed that the balance of US$1.23 billion (RM4.07 billion) from its controversial investment in a “segregated portfolio fund” in the Cayman Islands will be received in full “before the end of November 2014” (page 93).
However as of today, well into the month of January 2015, there has been no trace of these funds returning to Malaysia or to 1MDB.
On 23 December 2014, the Chairman of 1MDB, Tan Sri Lodin Wok Kamaruddin had hinted in his statement that 1MDB only “expects to redeem the remaining amount in the coming months”, as opposed to what was clearly promised in the 2014 financial report.
Tan Sri Lodin must explain and be accountable for the reason as to why are the funds not redeemed and received despite a clear directive and authorisation by the 1MDB Board of Directors to do so on 1st August 2014? 
Has there been a “new” decision by the 1MDB Board of Directors to suspend the above decision and delay the redemption of the Cayman funds indefinitely? In particular, has there been a change of heart only after the financial auditors, Deloitte Malaysia have agreed to sign of the financial report on the 5th November 2014?
The question then arises as to whether Deloitte Malaysia has been misled by 1MDB into signing off the 2014 financial report on the basis that the full value of the Caymans fund will be received?
If not for the promised receivable of US$1.23 billion, 1MDB would not have passed the “liquidity risk” test as the Company is expected to fully repay a RM2 billion outstanding loan by the end of November 2014.  The financial auditors may well have to offer their “qualified opinion” as to whether 1MDB can remain a going concern.
Instead, the Auditors wrote that “the Group’s holding of cash and short-term deposits, together with committed funding facilities and net cash flow from operations, are expected to be sufficient to cover its cash flow needs” (page 144).  This is clearly not the case now as 1MDB has failed to repay the RM2 billion loan till today, less than 2 months after the Auditors signed off the financial report.
Hence it also needs to be asked if Deloitte Malaysia performed sufficient due diligence on the investment in Cayman Islands to ensure that the ability of 1MDB to redeem in full the balance of US$1.23 billion can be achieved by November 2013 as promised?
This is especially since the Caymans investment is classified as a “Level 3” investment in the financial report, where “Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).” (page 153-155)
In layman’s terms, Deloitte Malaysia has inserted a disclaimer on the valuation of 1MDB’s Caymans investment, that it is unable to verify for certain if the valuation is per disclosed in the financial report.
Under such circumstances, should Deloitte have exercised extra diligence before accepting at face value that the promise of a full US$1.23 billion redemption “by the end of November 2013” given that the failure to do so will create a massive “liquidity risk” for the Group?
1MDB has unfortunately continued to express “regret that third party individuals who are not privy to the decision-making process of the company and do not have the full facts or understand the context of decisions that are made internally, continue to make speculative statements concerning 1MDB”.
Malaysiakini reported yesterday that 1MDB even insisted that it "manages the use of its cash in the most efficient way for the company”.
How do you honestly expect the financial and investment community, the media as well as Malaysians at large, not to “speculate” on what is happening when a wholly-owned subsidiary of the Ministry of Finance which has rapidly accumulated in excess of RM42 billion of debt has been unable to repay a RM2 billion debt which was due in November last year?

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