Najib telling half-truth on ‘guarantee’ given to 1MDB, claims DAP

IPO not enough to rescue 1MDB from its massive debts, says DAP

The prime minister was not entirely truthful when he said that the government's guarantee for sovereign wealth fund, 1Malaysia Development Bhd (1MDB), was only RM5.8 billion, the DAP said today.

The party's national publicity secretary Tony Pua claimed that on top of the government's guarantee, the Finance Ministry had also issued “letters of support” for other loans undertaken by 1MDB.

Thus, he said, Datuk Seri Najib Razak's written reply yesterday to a question by Bagan MP Lim Guan Eng on former prime minister Tun Dr Mahathir Mohamad's criticism of 1MDB and its debt was a "half-truth".

The matter, Pua said, was exposed by The Edge Malaysia weekly on its front page stating that the federal government has provided a “letter of support” for 1MDB Global Investments Limited to borrow US$3 billion (RM9.6 billion) in March last year.

He said that according to the letter, the government had stated that "in the event 1MDB, as shareholder of the Issuer, fails to provide the required funds, Malaysia shall then step in to inject the necessary capital into the Issuer or make payments to ensure the Issuer's obligations are fully met".

"Without outrightly stating that the government is providing a guarantee for the US$3 billion debt, the letter of support had effectively guaranteed the debt.

"The difference between a guarantee and a letter of support where the government ensures the Issuer's obligations are fully met is purely a matter of semantics," Pua added.

He added that the implication of this was that if 1MDB was unable to pay, the government would have to step in and this would result in a huge debt increase for the federal government.

"It will affect the way we spend our money and perhaps more subsidies need to be cut to finance the scandals of 1MDB," he added.

Pua also said the existence of this letter of support opened a new can of worms, adding that in 2009, four similar letters of support were found to be been issued by former Transport Minister Tun Ling Liong Sik to enable Kuala Dimensi Sdn Bhd to raise RM4.6 billion in bonds for the Port Klang Free Zone (PKFZ) project.

He said that while these letters of support were not explicitly guarantees, Attorney-General Tan Sri Abdul Gani Patail confirmed with the investigating Public Accounts Committee in August 2009 that the four letters were “tantamount to a guarantee”.

Pua said this resulted in the government bailing out the project by paying for the RM4.6 billion in bonds when they were due.

"Clearly from the PKFZ scandal, we know now that out of some RM38 billion of 1MDB debt, RM15.4 billion is guaranteed.

"We are not sure if the balance of the debt received similar letters of support.

"For that matter, we are not sure if there were any other companies or government agencies other than 1MDB and PKFZ which benefitted from such letters of support."

He also said that while official government guarantees for debt were not deemed as federal government debt, they were at least documented as because the government's contingent liabilities.

He added that the dubious letters of support were not registered anywhere in the government's financial statements.

Pua said that letters of support should be done away with and instead, when giving a guarantee, it should be listed on the list of guarantees in the federal government's financial statements.

He also suggested that the accounting system be changed to include the guarantees as part of the federal government's debt.

"Because of the crisis, Europe has done away with the contingent liabilities being hidden away in the accounts. It is fully reflected in the deficit and expenditure of the government."

Pua said nothing was known about how the US$3 billion was utilised, adding that the only thing stated was that it was borrowed for “strategic investments internationally”. – October 29, 2014.