When 1MDB’s 2014 Group audited accounts were delayed and only released in November 2014, the results were shocking! A profit after tax of RM778 million in 2013 had nosedived to a loss of RM665 million!
The profit of RM778 million in 2013 had in fact been deliberately inflated by paper gains of RM2.7 billion arising from revaluing development land. Without that artificial paper gain and other paper losses, 1MDB actually, operationally, lost about RM349 million!
The LOSS of RM665 million in 2014 had also been deliberately inflated by paper gains of RM897 million, again arising from revaluing development land. Without that artificial paper gain and other paper losses, 1MDB actually, operationally, lost about RM976 million!
As a Group, 1MDB had actually lost staggering hundreds of millions of ringgit every year from 2011-2014:
2014 (976) million loss
2013 (349) million loss
2012 (525) million loss
2011 (282) million loss
Not surprising then, that it was from 2011 that 1MDB’s top executives started to add in huge paper gains on land to mask real operating cash losses.
Below is the 5-year Profit & Loss Account from 2010 – 2014 excluding paper gains:
Given also that by 2014, it had borrowed some RM42 billion and incurred further other derivative debts of RM4.11 billion, the interest cost had risen to RM2.4 billion, with insufficient cash to service loan interest or build up reserves for loan capital repayments. Goldman Sachs alone had netted some unheard of 11% commission and fees on US$6.5 billion in loans it had raised for 1MDB. Some of the interest rates 1MDB had agreed to defies belief when compared to the market.
If we exclude the results of IPP companies from above P&L, the Holding Company’s (HC) financial results would be far worse. Do remember that by consolidating the P&L of IPP subsidiaries (as required by company law), the HC’s results look impressive. But in reality, unless the IPPs pay enough cash dividends regularly, the HC will have little cash flow to service the $42 billion of loans!!!
Significantly though, as has now been confirmed by the USA Department of Justice (DoJ) Report and Affidavit on kleptocracy by Najib, Rosmah, Jho Low and top 1MDB executives, massive fraud and false accounting had taken place at 1MDB. Amounts classified as ‘Investments Available for Sale’ and ‘Deposits’ in 1MDB’s balance sheet were backed by worthless “Units” and valuations and confirmations by dubious “fund managers” linked to Jho Low.
When the 2014 accounts were released and DAP’s Tony Pua lambasted 1MDB’s poor performance and management, its Chairman of Board Advisors, Finance Minister and Prime Minister Najib boasted that 1MDB had RM51 billion in assets. Yes, RM51 billion if you inflate the figures with paper gains and huge amounts of goodwill – some RM7.5 billion at cost – that should have been written off.
What these almost $7.5 billion of goodwill in the books of the IPPs represents is a mystery to me, especially since you can’t write a cheque and cash it.
The balance sheet above is shown in a simplified form to give us a very clear picture of the real financial position of 1MDB. The RM32 billion deficit is more realistic, given that from April 2014 to mid-2016, 1MDB was unable to service interest or loan capital repayment without bail out loans from the MoF, local banks/GLCs and Arab “partners”. 1MDB also claimed that it had paid US$6.5 billion to IPIC and its subsidiaries. However, this is now a confirmed fraud, with the money diverted to parties linked to Jho Low and Najib. At current US$ exchange that is an additional RM28 billion.
That brings 1MDBs loan debts to about an astonishing $84 billion currently – a disaster of Titanic proportions by any reckoning, as follows:
Loan Debts above – RM46 billion
Exchange Rate Loss – RM10 billion
IPIC debt – RM28 billion
Total – RM84 billion
Little wonder then that Najib is busy selling off 1MDB’s prized land gifted to it at below market value.
60% of Bandar Malaysia has been sold to a China consortium in 2016. The IPPs too were flogged off to another China state company for RM9.83 billion, resulting in a RM2 billion loss. What happened to Najib’s original explanation for buying the IPPs at inflated valuation – that we need to be in control of our energy banks?
What is curious though is that 1MDB CEO Arul Kanda had said in 2015 that 1MDB had utilised RM18 billion cash to acquire the IPPs. CLICK HERE.
However, the 2013/2014 audited accounts show that 1MDB only paid RM12 billion for the IPPs. What happened to the balance of RM6 billion? CLICK HERE
for the 2014 audited accounts. As the RM6 billion loans were “inherited” from the IPPs, there was no cashflow out. So, why would 1MDB have paid RM6 billion to any bank or entity or person?
The whole world now knows that Najib is desperate to cover up the huge hole in 1MDB’s balance sheet caused by his own greed, utter incompetence and thieving and looting mentality. Sarawak Report had exposed as far back as July 2016 that he was planning to inflate the cost of the East Coast Railway Link project by RM30 billion. China once again seems to be coming to bail him out.
What else will Najib flog to China to save his skin, and at what cost to the sovereignty and finances of the nation?
NB: All figures quoted here were derived from 1MDB’s audited accounts for 2010-2014. The figures have been re-arranged so as to show the true profit/loss and balance sheet positions without cosmetics and window dressing. The respective auditors were:
2013 & 2014 – Deloitte
2010 – 2011 – KPMG
It is relevant to note that Deloitte gave clean audit reports for 2013 and 2014. In 2016 however, in the wake of the USA DoJ action on kleptocracy at 1MDB by mainly Najib, Deloitte issued a startling statement that their 2013 and 2014 reports could not be replied upon, and subsequently resigned. Under no circumstances can audit reports accepted and approved by shareholders, be withdrawn by the auditors unless fraud is proven, on which Deloitte has been absolutely silent. A lawsuit has yet to be filed by anyone against Deloitte for professional negligence!